Arm Shares Fall as Third-Quarter Outlook Offers Limited Upside Despite Earnings Beat

Arm Holdings (NASDAQ:ARM) shares declined more than 3% in premarket trading on Thursday after the British semiconductor technology company reported fiscal second-quarter earnings and revenue above analysts’ estimates, while its guidance for the current quarter remained close to market expectations.

The Cambridge-based company reported adjusted earnings of $0.52 per share on revenue of $1.44 billion for the second quarter of fiscal 2027. Analysts had expected adjusted earnings of $0.47 per share and revenue of $1.38 billion.

For the third quarter, Arm forecast adjusted earnings of $0.56 per share, plus or minus $0.04, and revenue of $1.54 billion, plus or minus $50 million. Consensus estimates stood at $0.55 per share and $1.53 billion in revenue.

The guidance exceeded expectations slightly at the midpoint, but did not indicate a substantial increase relative to analysts’ forecasts.

Arm Reports Quarterly Earnings and Revenue Above Estimates

Arm’s fiscal second-quarter results exceeded consensus expectations on both revenue and adjusted earnings.

The company generated $1.44 billion in quarterly revenue, compared with analysts’ forecasts of $1.38 billion, while adjusted earnings per share reached $0.52 against expectations of $0.47.

Arm earns revenue by licensing its semiconductor designs and related technologies to customers and collecting royalties on products incorporating its intellectual property.

Its technology is used by semiconductor and technology companies including Qualcomm, Apple and Samsung Electronics, as well as cloud computing providers such as Amazon, Microsoft, Alphabet and Meta Platforms.

The company’s business spans mobile devices, cloud computing infrastructure and other systems requiring processor technology.

Demand for artificial intelligence computing has also become an important factor in Arm’s development strategy.

Third-Quarter Guidance Remains Close to Consensus

For the third quarter of fiscal 2027, Arm expects adjusted earnings per share of $0.56, with a possible variation of $0.04 in either direction.

The forecast implies a range of $0.52 to $0.60 per share, compared with the consensus estimate of $0.55.

Revenue is projected at $1.54 billion, plus or minus $50 million, representing a range of $1.49 billion to $1.59 billion.

Analysts had expected revenue of $1.53 billion.

Although the midpoint of both guidance ranges was above consensus, the difference was relatively limited.

The outlook came as investors continued to assess whether semiconductor companies could generate sufficient revenue growth from artificial intelligence infrastructure spending.

Arm Expands Beyond Licensing With New AI Data Centre Processor

Arm has been broadening its business strategy beyond licensing intellectual property and providing computing subsystems.

Earlier in 2026, the company announced plans to enter the silicon products market, including the introduction of the Arm AGI CPU, a central processing unit designed for artificial intelligence data centres.

The expansion adds a new business alongside Arm’s established technology licensing and royalty operations.

Chief Executive Officer Rene Haas and Chief Financial Officer Jason Child discussed the company’s strategy in a letter to shareholders.

“AI is driving unprecedented demand for compute across the cloud, devices and autonomous systems, with Arm being the compute platform of choice. Our business is now driven by two areas, both of which are showing rapid growth: The IP business, where partners increase their investment in Arm technology and deploy record numbers of Arm-based silicon, and our new silicon business, where demand for Arm AGI CPU is extremely strong,” the executives said.

The company expects its new processor business to contribute to future revenue growth alongside its established licensing activities.

Data Centre Royalties Double as Server Market Share Increases

Arm reported growth in its data centre business, supported by increasing adoption of its processor architecture among major cloud computing providers.

According to the company, data centre royalty revenue doubled year over year.

Arm also reported that its share of server processors at leading hyperscale cloud operators increased from 15% in calendar 2024 to more than 50% in calendar 2025.

The company’s executives outlined these developments in their shareholder letter.

“Arm continues to gain share across the data center, driven by growing demand for performance and power efficiency as AI infrastructure scales. Data center royalties doubled year over year, and Arm-based server market share at the top hyperscalers more than tripled—from 15% in calendar 2024 to more than 50% in calendar 2025,” they said.

Arm expects further adoption of its technology through processor deployments involving Google Axion, AWS Graviton, Microsoft Cobalt and NVIDIA platforms.

“Based on current ramps across Google Axion, AWS Graviton, Microsoft Cobalt, and NVIDIA platforms, we expect that share to exceed 60% by the end of calendar 2026,” the executives added.

The projections reflect the company’s expectations for continued adoption of Arm-based server technology.

Analysts Focus on Server Royalties and CPU Business Development

HSBC analysts noted Arm’s continued emphasis on its AGI CPU strategy but identified server royalties as an important contributor to its earnings outlook.

The analysts said that “server royalties remain a key driver.”

“We believe server royalties remain the key earnings catalyst upside with the clearest visibility over the next 12 month given increasing server CPU TAM and Arm market share along with rising CPU core count which increases royalty ASP per chip,” they wrote.

The comments highlighted expectations that growth in the server processor market, Arm’s market share and the number of CPU cores per chip could increase royalty revenue.

Raymond James analysts also assessed management’s comments about the new processor business.

The firm’s analysts said the commentary “suggests it is incrementally confident that it has enough supply and customer commitments for the CPU business for up to $2B of sales through the end of FY28, but we opt to remain conservative until we can discern more tangible trends.”

Their assessment reflected continued attention to customer adoption, production capacity and the timing of revenue generation from Arm’s silicon products.

Semiconductor Shares Face Pressure Amid AI Investment Concerns

Arm’s results were released during a period of declining share prices across the semiconductor sector.

Investors have been assessing the scale of borrowing used to finance artificial intelligence infrastructure and whether the associated spending will produce sufficient financial returns.

The Philadelphia Semiconductor Index, a benchmark for semiconductor shares, declined 15.4% in October.

Arm’s US-listed shares fell nearly 29% during the same month.

The declines reflected broader market concerns about the financing requirements and expected returns associated with large-scale AI infrastructure development.

Against this background, quarterly results and financial guidance from semiconductor companies have received increased attention as investors evaluate demand for AI computing technology.

Arm Outlook

Arm exceeded analysts’ fiscal second-quarter earnings and revenue expectations, supported by its established semiconductor technology business and growing exposure to data centre computing.

However, the company’s third-quarter guidance remained only slightly above consensus estimates, contributing to the decline in its shares during premarket trading.

Management expects further growth in server processor adoption and is expanding its business through the Arm AGI CPU.

Investors and analysts will continue to monitor server royalty revenue, adoption of Arm-based processors and the commercial development of its new silicon products.

Arm Holdings stock price