Arm Licensing Revenue Surges 50 Percent to $773 Million as Data Center Royalties Double

Arm, the SoftBank-owned chip design house whose architecture underpins most of the world's phones and a growing share of its servers, reported record revenue of $1.443 billion for its fiscal second quarter ended September 30, up 27 percent year over year and ahead of the $1.38 billion analysts expected. Adjusted EPS of $0.52 also beat consensus of $0.47. It is the fifth consecutive quarter of revenue growth above 20 percent.

Licensing and other revenue was the standout, jumping 50 percent to $773 million against expectations of about $625 million, helped by several large agreements and favorable recognition timing. Arm said annualized contract value grew 12 percent to $1.79 billion, a sign that customers keep paying up for more capable CPU, GPU and NPU designs.

Royalty revenue — the recurring fee Arm collects on every chip a customer ships — grew a more modest 8 percent to $670 million, short of the $720.8 million analysts modeled. Data center royalties doubled year over year, but the strength was partly offset by surging memory prices squeezing the smartphone market, the company said. Higher-rate Armv9 and Compute Subsystems adoption continued to lift the per-chip rate.

The data center story is the strategic core. Arm says Arm-based servers at major hyperscalers went from roughly 15 percent of deployments in 2024 to more than 50 percent in 2025, and it projects the share will exceed 60 percent by the end of 2026. Amazon says revenue commitments for its Graviton chips grew more than twentyfold year over year; Microsoft cites strong Cobalt adoption, Google lists Axion among its AI infrastructure components, and NVIDIA's Arm-based Vera CPU is now generally available on Oracle Cloud and in production for OpenAI. These vendor claims come from Arm and its partners and are not independently audited.

For the first time, partners shipped more than 10 billion Arm-based chips in a single quarter, up about 1.5 billion year over year. Arm says its share of global PC shipments is around 20 percent, and royalties from physical AI in cars and robots grew about 50 percent.

The wildcard is Arm's own silicon. The company said orders for the AGI CPU it launched in March now stretch into calendar 2027, with first commercial deliveries planned for the fourth quarter of fiscal 2027, and it repeated a target of up to $2 billion of AGI CPU revenue across fiscal 2027 and 2028 — a company forecast, not booked revenue. Oracle plans AGI CPU instances on OCI in 2027.

The quarter was not flawless. GAAP net income fell 45 percent to $130 million, mostly because the year-ago quarter included a $131 million gain from selling the Artisan IP business to Cadence, and free cash flow dropped 73 percent to $110 million. Guidance for the December quarter of about $1.54 billion only narrowly cleared the $1.53 billion consensus, and the stock slipped roughly 1.8 percent in after-hours trading. Investors appear willing to fund Arm's licensing boom — but they want to see it convert into royalties, and into chips.