Analyst(s): Futurum Research
Publication Date: November 6, 2026

Arm’s licensing gains and cloud deployments offset pressure on smartphone royalties. Orders for its own server chip give Arm a second route to data center revenue, with supply shaping how quickly it can deliver.

What Is Covered in This Article:

• Arm’s Q2 FY 2027 financial results
• Head node conversions extend data center royalty growth
• Arm AGI CPU pushes Arm toward rack-level systems
• Edge royalties decouple from handset units
• Guidance and Final Thoughts

The News: Arm Holdings (NASDAQ: ARM) reported Q2 FY 2027 revenue of $1.44 billion, up 27% year over year (YoY), above Wall Street consensus of $1.38 billion and its prior guidance range of $1.33 billion to $1.43 billion. License and other revenue increased 50% YoY to $773 million, and royalty revenue increased 8% YoY to $670 million. Non-GAAP operating income increased 37% YoY to $638 million, and non-GAAP operating margin rose to 44.2% from 41.1%. Non-GAAP net income increased 36% YoY to $566 million, and non-GAAP diluted earnings per share (EPS) increased 33% YoY to $0.52.

“Demand for our silicon business continues to accelerate, with growing customer commitments giving us even greater confidence in achieving up to $2 billion in Arm AGI CPU revenue across fiscal 2027 and 2028. Arm is becoming the compute platform of choice as AI transforms every market,” said Rene Haas, chief executive officer of Arm.

Arm Q2 FY 2027: AGI CPU Orders Expand Data Center Opportunity

Analyst Take: Arm’s license revenue hit $773 million, about $100 million above the company’s own plan, as customers signed long-term commitments for access to its roadmap instead of buying one design at a time. Two contract types drive that shift. Arm Total Access (ATA) subscriptions give customers broad access to Arm’s current and future IP portfolio, and three new agreements took active subscriptions above 60, including one major customer signing its first ATA. Compute Subsystems (CSS) go further, delivering pre-integrated and validated CPU subsystems that carry higher royalty rates than standalone cores, and Arm signed four new CSS licenses split evenly between data center and smartphone chips. Management said ATA and CSS now make up the bulk of what Arm sells, with architecture licenses increasingly rare, and that newer customers with limited prior Arm use are signing both to speed adoption. Arm now takes on more of each customer’s design work up front and collects a higher royalty per unit once those designs reach production. The Arm AGI CPU adds a silicon business on top, pointing Arm toward complete server systems.

Head Node Conversions Extend Data Center Royalty Growth

Data center royalties doubled YoY, and Arm expects Arm-based server share at the top hyperscalers to exceed 60% by the end of calendar 2026, up from 15% in calendar 2024. Management cited two drivers beyond its own silicon. Agentic AI is increasing design starts for Amazon Web Services Graviton, Google Axion, and Microsoft Azure Cobalt, and accelerator platforms are replacing x86 head nodes with Arm CPUs, as in NVIDIA Vera Rubin and Google’s move to Axion as host for its eighth-generation TPU. Amazon, Google, Microsoft, and NVIDIA account for the majority of data center royalties, concentrating the growth path in four buyers. Management expressed confidence that data center royalties can grow at triple-digit rates over the next several years as core counts rise and more CSS revenue flows through. Neoverse CSS N4, which scales to 128 cores per die with LPDDR6 and PCIe Gen 7, gives custom silicon teams a faster route to those designs.

Arm AGI CPU Pushes Arm Toward Rack-Level Systems

Arm secured Arm AGI CPU purchase orders from multiple customers extending through calendar 2027, with Meta the lead customer. Supermicro, Lenovo, and ASRock are building racks for sites such as Oracle Cloud Infrastructure, which plans to offer Arm AGI CPU instances in calendar 2027. CEO Rene Haas said Arm designs for rack system performance and is evaluating connectivity, I/O, and networking, with follow-on chips tracking an 18- to 24-month production cadence. He expects agentic workloads, which typically run one agent per CPU core, to push server processors from 128 cores toward 500 or more. The roughly twofold per-rack advantage Arm cited at the Open Compute Project summit was measured against AMD’s EPYC 9755, the generation before Venice, so buyers will need to test it against current x86 parts under their own rack power limits.

Silicon also changes Arm’s economics. Management expects first-generation gross margins of roughly 30% to 40%, moving toward 50% or more on later versions, with memory the largest cost pressure. Haas acknowledged AMD’s greater scale in securing supply while pointing to Arm’s long-standing ties with TSMC, Micron, Samsung, and SK hynix.

Edge Royalties Decouple From Handset Units

Edge AI royalties were roughly flat YoY as higher memory prices pressured smartphone volumes, with higher Armv9 and CSS royalty rates offsetting the unit decline. Management expects smartphone units to be roughly flat next year and Arm’s handset royalties to grow at a double-digit rate as partners move to next-generation CSS, including CSS for Mobile 2. Physical AI royalties rose 50% YoY on advanced driver assistance and in-vehicle infotainment, and Arm Total Design for Physical AI now gathers more than 80 companies. Tensor’s Level 4 Robocar uses more than 400 Arm CPU cores, illustrating how centralized vehicle architectures raise Arm’s compute content per vehicle.

Guidance and Final Thoughts

Arm guided Q3 FY 2027 revenue to $1.49 billion to $1.59 billion, with the $1.54 billion midpoint implying approximately 24% YoY growth and sitting slightly above Wall Street consensus of $1.53 billion. Diluted EPS is expected at $0.52 to $0.60. Management anticipates license and other revenue growth slightly above 50% YoY, while royalty revenue is expected to grow at a low-single-digit rate YoY against a difficult comparison. Arm plans first commercial AGI CPU deliveries in Q4 FY 2027, has expressed greater confidence in up to $2 billion in combined AGI CPU revenue across FY 2027 and FY 2028, and expects to update longer-term targets at its next Arm Everywhere event in the first half of calendar 2027.

Arm is moving up the stack from instruction set to subsystem to finished silicon, with each step raising revenue per socket. The licensing surge is the leading indicator, since management said ATA and CSS commitments typically convert into royalties 12 to 24 months after signing. The same move sharpens tension with licensees, as hyperscalers designing their own Neoverse-based CPUs now share the market with an Arm-designed processor. Initial AGI CPU shipments and repeat orders beyond Meta will test whether Arm can add a hardware business at lower first-generation margins without diluting the licensing economics that fund its roadmap.

See the full press release on Arm’s Q2 FY 2027 financial results on the company website.

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Other Insights From Futurum:

Arm AGI CPU Posts 2x the Agentic Work Per Rack of AMD’s EPYC 9755 at OCP 2026

Arm Q1 FY 2027: Data Center Royalties Strengthen as AGI CPU Gains Traction

Arm’s Agentic Moat Widens With CSS for Mobile 2, CSS N4, and Physical AI

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