Arm Holdings shares climbed about 8% in trading on Thursday after the British chip designer reported fiscal first-quarter results that topped Wall Street expectations and issued stronger-than-expected guidance.
Analysts broadly welcomed the results, highlighting accelerating demand for Arm’s artificial intelligence-focused processor roadmap despite continued supply constraints.
The company reported fiscal first-quarter revenue of $1.29 billion, up 22% from a year earlier and above analysts’ estimates of $1.26 billion, according to FactSet.
Adjusted earnings came in at 45 cents per share, beating expectations of 40 cents.
Profit rose to $270 million, or 25 cents per share, from $130 million, or 12 cents per share, a year earlier.
Royalty revenue increased 22% to $715 million, driven by more than doubling of data center royalties, while licensing revenue climbed 23% to $574 million.
For the second quarter, Arm forecast adjusted earnings between 43 cents and 51 cents per share on revenue of $1.33 billion to $1.43 billion, ahead of analyst expectations of 44 cents 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 added that it has secured manufacturing capacity for initial deployments while continuing to expand production with partners.
Arm also said the transition toward Arm-based AI infrastructure continued during the quarter, citing expanding adoption among major technology companies including Nvidia, Amazon Web Services, Google, Microsoft and Qualcomm.
The company added that shipments of its Neoverse data center processors have surpassed 1.5 billion cores.
Speaking about the growth of AI workloads, Chief Executive Rene Haas told Reuters, “The more inference workloads you run, that creates work that only CPUs can do.”
Haas also said, “We have new customers in North America and China,” adding, “I feel better about (supply) than I did 90 days ago.” Oracle has also agreed to purchase the company’s AGI CPU, although 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 said, “Arm’s FYQ1 results and FYQ2 guidance are above expectations,” adding that the company is increasingly confident of generating more than $1 billion in AGI CPU revenue by FY28. Jefferies noted that while smartphone-driven royalty growth has softened, stronger licensing revenue has offset that weakness. It added that higher average selling prices should help preserve gross margins and said it 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 FY27 outlook. The bank also said the company’s AGI merchant silicon CPU strategy continues to gain traction following its Arm Everywhere event.
The brokerage said it 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. J.P. Morgan also highlighted management’s view that the “$100B FYE30 CPU TAM framework… may have been conservative,” suggesting there could be further upside to the company’s 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.
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