Updated: Arm's third quarter revenue forecast exceeds market expectations, but investor reaction remains muted

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Prathik Jayaprakash/Max A. Cherney

Reuters, Nov 4 - Arm Holdings (O9Ty.F, ARM.O) on Wednesday forecasted third-quarter revenue to be slightly above Wall Street expectations, a result that disappointed investors and caused the chip company's shares to fall about 3.5% in after-hours trading.

As leading cloud service providers develop custom processors for data center workloads, demand for Arm-based technology has benefited from the AI boom. Arm’s architecture is highly regarded for its energy efficiency—a factor of growing importance as operators look to control power and cooling costs when running large AI models.

“We are seeing a significant uptick in demand for all relevant technologies in the data center sector,” Arm CEO Rene Haas told Reuters in an interview.

The company now expects sales of its central processing unit (CPU), the AGI CPU, to reach $2 billion in fiscal 2027 and 2028. Haas stated that the company has partnered with Taiwan’s TSMC and other chip suppliers to secure sufficient raw materials to produce these $2 billion worth of chips.

“We believe those two (billion-dollar) targets are now fully achievable,” Haas said.

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Before this year, Arm primarily sold its design schemes, but in March, the company announced its entry into the complete chip business and had already received $1 billion in orders by the time the AGI CPU launched.

Unlike semiconductor manufacturers, Arm Holdings monetizes by licensing its processor architecture and collecting royalties from chips shipped using its technology, making license fees and royalties the company's main sources of revenue.

Arm said its server chip architecture accounted for more than 50% of major cloud service provider deployments in 2025 and is expected to exceed 60% by the end of 2026.

Royalty revenue from each chip shipped using its technology increased by 8% in the second quarter to $670 million, while the market expected $720.8 million.

License revenue (including upfront payments for using its technology) was $773 million, compared to market expectations of $625.1 million.

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

Arm's adjusted earnings per share were $0.52, surpassing the expected $0.47 per share.

The company expects third-quarter revenue to be $1.54 billion, while analysts on average projected $1.53 billion.

Last month, a jury in Delaware found that Arm had breached parts of its license agreement with Qualcomm (link) and interfered with Qualcomm’s relationship with Meta, but awarded only $2 in damages. Key disputes over royalties and future licensing terms will be decided by a judge.

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