Updated version 1 - Thanks to demand from artificial intelligence and data centers, Arm's second-quarter revenue exceeded expectations.

Supplemented share price performance in the 4th paragraph

Reuters, November 4 - Arm Holdings (O9Ty.F, ARM.O) reported on Wednesday that its second-quarter revenue exceeded Wall Street expectations, largely driven by increased royalties and license fees as customers deploy its chip architectures in artificial intelligence-related computing products.

Unlike chipmakers that manufacture semiconductors, Arm Holdings licenses its processor architectures and collects royalties from chips shipped using its technology, making license and royalty fees the principal source of its revenue.

Arm said that its server chip architecture will account for more than 50% of major cloud service provider deployments by 2025, and is expected to surpass 60% by the end of 2026.

The company’s share price fell about 2% in after-hours trading.

As major cloud providers develop custom processors for data center workloads, demand for Arm-based technology has benefited greatly from the AI boom.

Arm’s architecture is widely praised for its energy efficiency, which is becoming an increasingly important factor as operators seek to manage power consumption and cooling costs when running large-scale AI models.

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Second-quarter royalty revenue from chips shipped using Arm’s technology rose 8% to $670 million, while market expectations were $720.8 million.

License revenue (including up-front payments for using its technology) was $773 million, while market expectations were $625.1 million.

According to data compiled by London Stock Exchange Group (LSEG), the company’s second-quarter revenue was $1.44 billion, beating the analyst average estimate of $1.38 billion.

Arm’s adjusted earnings per share were $0.52, beating the $0.47 per share expectation.

The company expects third-quarter revenue of $1.54 billion, compared to analysts’ average estimate of $1.53 billion.

Last month, a Delaware jury found that Arm violated parts of its license agreement with Qualcomm (link) and interfered with Qualcomm's collaboration with Meta, but awarded only $2 in damages; the key disputes over royalties and future licensing terms will be decided by the judge.

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