Arm Holdings (ARM) Q2 FY2027: revenue up 27% to $1.44B, licensing up 50%, royalties only 8%

$ARM reported revenue of $1.443B for its second fiscal quarter, up 27% from a year ago and above the top of its own $1.38B plus or minus $50M guide, with non-GAAP EPS of $0.52 against a $0.47 plus or minus $0.04 guide. The growth came from licensing, up 50%, while royalties grew 8%: data center royalties doubled, and smartphone royalties felt memory prices. This recap walks the print, the guide, the data center and silicon lines our /stocks/arm thesis rests on, and what to watch next.

The print

$ARM reported the quarter ended September 30, 2026, its second quarter of fiscal 2027. The comparison below is against the company's own guide, not an analyst consensus.

Against the guide:

What moved the numbers:

• Licensing. License and other revenue rose 50% to $773M, which the letter puts down to demand for Arm IP, "fluctuation in the timing and size of multiple high-value license agreements" and backlog. Annualized contract value, the company's smoother licensing gauge, grew a more modest 12%.
• Royalties. Royalty revenue rose 8% to $670M on higher royalty rates per chip (Armv9, Compute Subsystems) and more Arm chips in data centers, "partially offset by the impact of memory pricing on the smartphone market."
• The GAAP line. Non-GAAP EPS grew 33%, GAAP EPS fell 45%. GAAP operating expenses of $1,200M were $426M above the non-GAAP figure, and GAAP research and development reached $857M against $547M non-GAAP.

Cash, cash equivalents and short-term investments were $3,621M at September 30. Trailing twelve-month free cash flow was $1,096M, up 2%.

The guide

The revenue midpoint is about 7% above Q2's $1.443B, and the EPS midpoint about 8% above Q2's $0.52. These are company guides, not results. Arm does not reconcile the forward non-GAAP figures to GAAP.

Data center and silicon: the two lines the thesis rests on

Our ARM page frames the stock as the CPU instruction set under the AI compute stack, with Armv9 and Compute Subsystems lifting the royalty per chip, against a bear case of a rich multiple, the SoftBank float overhang and the Qualcomm licensing dispute. The letter adds these pieces:

• Data center royalties doubled year over year. Management puts Arm's share of servers at the top hyperscalers above 50% in calendar 2025, from 15% in 2024, and expects more than 60% by the end of calendar 2026 (a company expectation, not a result). It cites AWS Graviton, Google Axion, Microsoft Cobalt and $NVDA Vera.
• Arm AGI CPU, the company's own silicon: purchase orders from multiple customers extend through calendar 2027, first commercial deliveries are "on track for fiscal Q4'27", and management says its confidence in "up to $2 billion" of AGI CPU revenue across fiscal 2027 and 2028 has increased. Oracle Cloud plans AGI CPU instances in 2027.
• Volume. Partners reported more than 10 billion Arm-based chips shipped in the quarter, 1.5 billion more than a year ago.
• Edge and physical AI. Arm-based PCs at about 20% of global shipments, and physical AI royalties (driver assistance, infotainment) up 50%.

Net read: the data center side of the thesis printed, and the silicon business is now a stated revenue target. The part that has not printed yet is total royalty growth: 8% this quarter, with management saying it expects royalty revenue to accelerate as the new licenses reach production. The letter does not mention the Qualcomm dispute.

Peer reaction

$ARM's closest correlated names in the QA universe over 252 days include $RMBS (0.63), $AMD (0.62, in the same AI Compute Accelerators bubble) and $IFNNY (0.61).

• AMD is the x86 side of the server share figures above: every point Arm gains at the hyperscalers is a point x86 does not hold.
• The letter came out after the close, so the session reaction was not established when this recap was written.

What worked

• Record second-quarter revenue of $1.443B, above the top of the guide.
• Licensing up 50% to $773M, and annualized contract value up 12% to $1,790M.
• Data center royalties doubled, with server share at the top hyperscalers above 50% in 2025 by the company's count.
• Non-GAAP operating margin up to 44.2% from 41.1% while non-GAAP R&D grew 17%.
• A Q3 guide of $1.54B and a raised confidence in the AGI CPU revenue target.

What broke

• Royalties. Up 8% only, with the smartphone side hit by memory pricing.
• Licensing lumpiness. Part of the 50% comes from the timing and size of large agreements, by the company's own wording, while annualized contract value grew 12%.
• Cash. Quarterly operating cash flow of $207M (from $567M) and free cash flow of $110M (from $411M).
• GAAP earnings. GAAP EPS of $0.12, down 45%, as GAAP operating expenses grew 27%.
• The tape. A $194.35 close on November 4 before the release, down 34% over a month and 31% over three months, up 21% over a year in the data QA tracks.

What to watch

• Next earnings. Q3 fiscal 2027, expected in early February on Arm's usual cadence (not yet confirmed).
• Royalty growth against the acceleration management expects, and the smartphone memory effect.
• AGI CPU first commercial deliveries, guided for fiscal Q4 2027, and the progress toward "up to $2 billion" over fiscal 2027 and 2028.
• Hyperscaler server share, the company's "more than 60%" expectation for the end of calendar 2026.
• Levels. One curated level on ARM, the key Fibonacci line at $185 set in April, just below the November 4 close.

The level map, the peer table and the standing thesis live on /stocks/arm. The desk's full read in one document is the ARM Teardown Dossier, included in Pro.

To follow the compute names as a group, see the AI Compute Accelerators bubble. Rule-based alerts on the cohort are part of /pro.

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Educational research on structural market dynamics. Not investment advice. QuantAbundance positions may change without notice.