Arm Beats Q2 Estimates as Licensing Jumps 50%, but Royalties Lag and Shares Fall About 11%

ARM reported fiscal second-quarter 2027 revenue of $1.44 billion, ahead of the $1.38 billion estimate, adjusted EPS of $0.52 against $0.47 expected, and adjusted operating income of $638 million against an estimate of $575.7 million. Revenue rose 27% year over year, a beat Reuters attributed to AI and data-center demand.

The mix is the story. Arm's own release shows licensing and other revenue up 50% to $773 million, while royalty revenue, the recurring stream paid on every chip shipped, was $670 million, roughly 8% growth according to post-call recaps. For the third quarter Arm guided revenue to $1.54 billion, plus or minus $50 million, against a consensus near $1.53 billion, and non-GAAP EPS to $0.56, plus or minus $0.04, in line with the $0.56 estimate. Management said royalty growth would be in the low single digits, citing smartphone weakness and a tough prior-year comparison, while licensing should grow a little over 50%.

The market weighed the royalty slowdown over the headline beat. Shares first slipped after hours on Wednesday even as results and guidance topped estimates, then deepened the decline on Thursday: they were down 10.9% at $170.96 late in the morning, according to SentiSense's delayed price. HSBC cut its price target, citing royalty weakness despite the licensing beat, according to Investing.com.

The bull case rests on data-center royalties, which recaps said doubled, and on Arm's push into its own chips: the company now sees up to $2 billion of AGI CPU revenue across fiscal 2027 and 2028. What to watch: whether royalty growth re-accelerates as smartphone demand recovers, and whether licensing strength that came from customers accelerating long-term commitments repeats or was pulled forward.