Arm Holdings shares climbed approximately 8% in trading on Thursday after the British chip designer reported fiscal first-quarter results that exceeded Wall Street expectations and issued stronger-than-anticipated guidance. The company's performance underscores accelerating demand for its artificial intelligence-focused processor roadmap, despite ongoing supply constraints.
For the fiscal first quarter, Arm reported revenue of $1.29 billion, up 22% year-over-year and above the $1.26 billion analysts had forecast, according to FactSet. Adjusted earnings came in at $0.45 per share, beating the consensus estimate of $0.40. Net profit rose to $270 million, or $0.25 per share, compared with $130 million, or $0.12 per share, in the same period last year.
Royalty revenue increased 22% to $715 million, driven by a more than doubling of data center royalties. Licensing revenue climbed 23% to $574 million. For the second quarter, Arm forecast adjusted earnings between $0.43 and $0.51 per share on revenue of $1.33 billion to $1.43 billion, ahead of analyst expectations of $0.44 per share on revenue of $1.34 billion.
AGI CPU demand continues to strengthen
The company's AI strategy remained the focal point for investors. Arm said demand for its Arm AGI CPU has exceeded initial expectations, with customer demand now surpassing $2 billion across fiscal 2027 and 2028. The company has secured manufacturing capacity for initial deployments while continuing to expand production with partners.
Arm also highlighted the transition toward Arm-based AI infrastructure, citing expanding adoption among major technology companies including Nvidia, Amazon Web Services, Google, Microsoft and Qualcomm. Shipments of its Neoverse data center processors have surpassed 1.5 billion cores.
Chief Executive Rene Haas told Reuters, "The more inference workloads you run, that creates work that only CPUs can do." He also noted new customers in North America and China and expressed greater confidence in supply compared with 90 days ago. Oracle has agreed to purchase the company's AGI CPU, though Arm did not disclose the value of the agreement.
The company noted that smartphone royalty growth remains softer due to memory shortages, with finance chief Jason Child forecasting second-quarter smartphone royalty growth of roughly 10% to 15%.
Analysts remain positive despite mixed views on valuation
Jefferies reiterated its Buy rating and maintained a $320 price target, saying Arm's quarterly performance and outlook came in ahead of expectations. The brokerage noted that Arm is increasingly confident of generating more than $1 billion in AGI CPU revenue by fiscal 2028. Jefferies added that while smartphone-driven royalty growth has softened, stronger licensing revenue has offset that weakness, and higher average selling prices should help preserve gross margins. The firm continues to view Arm as an attractive long-term investment, citing ">40% Agentic AI-led growth to FY31."
J.P. Morgan maintained its Overweight rating and extended its price target timeframe, describing the quarter as "a clean beat across the P&L" that supports a modest increase to Arm's full-year fiscal 2027 outlook. The bank said the company's AGI merchant silicon CPU strategy continues to gain traction following its Arm Everywhere event. J.P. Morgan expects upside to Arm's initial $1 billion AGI CPU revenue framework to emerge, potentially by the third-quarter earnings report, as the company works to expand manufacturing capacity and finalize customer allocations. The bank also highlighted management's view that the "$100B FYE30 CPU TAM framework... may have been conservative," suggesting further upside to the long-term AI CPU opportunity.
HSBC, however, remained more cautious. The brokerage lowered its price target to $230 from $315 while maintaining a Hold rating, saying, "Management has not actually raised their AGI CPU revenue guidance despite more bullish tone given ongoing uncertainty over foundry capacity constraints." HSBC added that it still sees higher AGI CPU revenue as "the biggest catalyst to earnings upside" and the key issue investors will continue to monitor.
For context on broader market trends, investors may also be watching AI-driven storage demand and data center energy demand as related themes.
This article is for informational purposes only and does not constitute financial advice.
