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AI Capacity · Server Chips

Arm's Second-Quarter Revenue Hits a Record $1.44 Billion, but Royalties Fell Short of Estimates

Data center royalties doubled, and Arm expects over 60% of big-cloud server deployments by year-end.

· 2 min read

A gloved hand holds a silicon wafer, its rows of chips shimmering violet and gold in the light.
Photograph: AI-generated

Arm reported royalty revenue of $670 million, up 8% from a year earlier and below the $720.8 million analysts expected, according to a published report.

Royalties are what Arm earns on each chip its partners ship, so the line tracks how many Arm-based chips actually reach servers and phones. Data center royalties doubled, yet the total grew by single digits because smartphones pulled the other way. For a cloud buyer weighing Arm-based servers, the data center line is the one Arm says is climbing fast.

Why did royalties lag if the data center doubled?

Memory pricing in the smartphone market offset part of the data center gain, Arm said, and royalties rose to $670 million from $620 million. By The Denominator’s arithmetic, the shortfall against the analyst estimate is about 7%. Arm did not give a dollar figure for data center royalties, so the size of the doubling is unknown.

Was the $1.44 billion a record?

It was Arm’s highest revenue for a second quarter, not for any quarter: the $1.49 billion booked in the quarter ended March 31 is still the largest. Licensing carried the latest quarter. License revenue rose 50% to $773 million. The published report put analysts’ expectation at $625.1 million.

License fees swing with the timing and size of big agreements, while royalties build with every chip shipped. Arm calls licensing a leading indicator of royalty growth.

What does Arm expect in the cloud?

Arm expects its chips to power more than 60% of server deployments at the top hyperscalers by the end of calendar 2026, up from more than 50% in 2025 and 15% in 2024. The forecast leans on the ramps of Amazon’s Graviton, Google’s Axion, Microsoft’s Cobalt and Nvidia’s platforms. Arm pointed to Amazon’s report that Graviton revenue commitments rose more than 20x from a year earlier.

Arm is also selling a chip of its own, the AGI CPU. Oracle Cloud Infrastructure plans to offer AGI CPU instances in 2027, and Arm has purchase orders from multiple customers that extend through calendar 2027. Arm’s confidence in up to $2 billion of AGI CPU revenue across fiscal 2027 and 2028 has grown. Arm sells the chip directly to customers.

First commercial deliveries are due in the quarter ending March 31, 2027.

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