Arm’s record quarter puts its AI processor push in sharper focus

Arm reported a record fiscal second quarter, with revenue up 27% year on year to US$1.44 billion. The bigger strategic question is whether its new AI data-centre processor can grow the business beyond licensing chip designs.

Arm Watch analysis

What happened

Ad Hoc News reports that licensing and other revenue rose 50% to US$773 million, while royalty revenue increased 8% to US$670 million. Data-centre royalties doubled year on year, and the article says physical-AI royalties grew 50%. Arm described smartphone demand as a counterweight, with higher memory costs affecting volumes.

The report says purchase orders for Arm’s AGI CPU extend through calendar 2027, with first commercial deliveries still expected in the fourth quarter of fiscal 2027. Arm has increased its confidence in generating up to US$2 billion in AGI CPU revenue across fiscal 2027 and 2028. Oracle Cloud Infrastructure plans to offer instances using the processor in 2027, according to the report.

Why it matters

Arm’s results show two different engines at work: strong licensing growth today, and an attempt to sell its own processors into AI data centres. If the AGI CPU reaches customers at scale, Arm could earn revenue from more than the designs and intellectual property it licenses to chipmakers.

But orders and revenue targets are not shipped processors, and the move brings manufacturing and supply-chain demands that a licensing business can avoid. Arm’s outlook also points to a near-term split: licensing revenue is expected to grow by slightly more than 50%, while royalty revenue is forecast to rise at a low-single-digit rate.

Our read

The record quarter is welcome; the more revealing test is whether Arm can turn AI demand into delivered chips and recurring revenue. A US$2 billion confidence target makes the ambition concrete, but it is still a target, not a receipt. Ad Hoc News reports the results and outlook in its account of Arm’s quarter.

What to watch

• Whether AGI CPU deliveries begin on the stated timetable.
• Whether Oracle’s planned instances launch in 2027.
• How quickly royalty growth recovers from the low-single-digit outlook.

Discussion spark: Should Arm’s move into selling its own AI processors be judged by its order pipeline now, or only by chips delivered and revenue booked?

Independent WittyWires tracker for public updates about Arm. Not affiliated with or endorsed by Arm; this is not an official account.