Company Overview
Arm Holdings delivered a blockbuster earnings report after yesterday’s market close that sent shares soaring over 5% in pre-market trading, as the chip designer posted record second-quarter fiscal 2026 revenue of $1.14 billion – up an impressive 34% year-over-year and $75 million above the midpoint of guidance. More importantly, the company’s forward guidance of $1.23 billion for fiscal Q3 substantially exceeded Wall Street’s expectations of $1.1 billion, representing a $130 million beat that signals accelerating momentum.
What makes Arm’s results particularly compelling is the across-the-board strength: royalty revenue hit a record $620 million (up 21% year-over-year) driven by smartphones with higher royalty rates and data center share gains, while licensing revenue exploded 56% to $515 million as companies rush to build next-generation AI products on Arm architecture. Perhaps most impressive is the data center story – Arm’s Neoverse royalties more than doubled year-over-year, with CEO Rene Haas revealing that the company expects its share of CPUs deployed by top hyperscalers to reach nearly 50% in 2025. This marks Arm’s third consecutive billion-dollar quarter and validates the company’s transformation from a mobile chip architecture provider into the foundation for AI computing “from milliwatts to megawatts.”
Key Technical and Fundamental Drivers
Blowout Earnings → Yesterday After Close Arm reported Q2 fiscal 2026 revenue of $1.14 billion (up 34% YoY, beating estimates by $80 million) and EPS of $0.39 (beating by $0.06), with Q3 guidance of $1.23 billion crushing Street expectations of $1.1 billion.
Data Center Dominance → Neoverse Doubles YoY Arm’s data center Neoverse royalties more than doubled year-over-year, with the company expecting to capture nearly 50% share of CPUs deployed by top hyperscalers in 2025, up from minimal share just years ago.
CSS Revenue Inflection → 19 New Licenses Compute Subsystems (CSS) products – which generate significantly higher royalties – signed 19 new licenses across 11 companies, with Samsung’s CSS-based Exynos chips delivering 40% better AI performance than prior generations.
Energy Efficiency Edge → 60% Better Than x86 Google’s Arm-based Axion processors deliver 60% better energy efficiency than comparable Intel or AMD chips, positioning Arm perfectly as power becomes the critical bottleneck in AI data centers.
Operating Leverage → 41.1% Margins Non-GAAP operating income surged 43% to $467 million with margins expanding to 41.1% from 38.6% a year ago, demonstrating strong operating leverage as the business scales.
Market Takeaway
Arm Holdings’ stunning quarterly results and guidance yesterday validate what many semiconductor bulls have been arguing: the AI revolution isn’t just about Nvidia’s GPUs – it’s fundamentally reshaping the entire computing stack, and Arm’s energy-efficient architecture is emerging as the foundation. The 60% energy efficiency advantage of Arm-based chips versus traditional x86 designs isn’t just a nice-to-have feature anymore – it’s becoming mission-critical as CEO Rene Haas noted that “access to power has now become the bottleneck” in data centers. This positions Arm perfectly for the next phase of AI infrastructure buildout.
The nearly 50% share of hyperscale data center CPUs represents a seismic shift in the semiconductor landscape. Just a few years ago, Intel’s x86 architecture dominated data centers with 90%+ share. Now, tech giants like Google, Amazon, and Microsoft are designing their own custom chips based on Arm architecture, and the doubling of Neoverse royalties year-over-year suggests this transition is accelerating. The Compute Subsystems strategy is particularly clever – by offering more complete chip designs that reduce time-to-market, Arm generates significantly higher royalties per chip while making it easier for customers to adopt its technology. With 19 new CSS licenses signed and Samsung already shipping CSS-based chips with 40% better AI performance, this higher-margin business is just beginning to scale.
The strategic partnership with Meta announced during the quarter adds another validation point, while management’s comments about potentially moving beyond platform licensing into “chiplets or complex SoCs” suggest Arm could have additional growth levers to pull in coming years. With the stock up over 5% in pre-market following yesterday’s report, momentum is clearly building, but the $130 million guidance beat for next quarter and accelerating data center adoption suggest Arm’s transformation story is far from fully priced in. As AI workloads proliferate and power efficiency becomes paramount, Arm’s position as the “only compute platform delivering AI everywhere” – from edge devices to massive data centers – makes it a foundational holding for investors seeking exposure to the AI infrastructure buildout.