Analyst(s): Dr. Bob Sutor
Publication Date: November 13, 2024
Arm Holdings’ second-quarter fiscal year 2025 royalty revenue rose 23% over the previous year, though revenue dropped $95 million from the previous quarter. Its Armv9 architecture’s widespread usage across industries drove the year-to-year expansion. The company’s Compute Subsystems strategy and collaborations in AI, data centers, and the automotive industry are increasing demand and establishing its energy-efficient computing leadership. Arm expects sales of $920 million to $970 million for the upcoming quarter despite rising operational expenditures due to research and development.
What is Covered in this Article:
- Arm’s Q2 FY25 financial highlights and revenue drivers
- Key growth contributors: Armv9, Compute Subsystems (CSS), and AI partnerships
- Expanding role in AI, data center, and automotive markets
- Financial metrics and long-term strategic focus
- Arm’s outlook for Q3 FY25 and future growth initiatives
The News: Arm Holdings reported its FY Q2 2025 earnings on November 6, 2024. Revenue was $844 million, up 5% year-to-year and above guidance, but was down from $939 million the previous quarter. This quarter’s royalty revenue rose 23% due to Armv9’s widespread adoption across AI-enabled devices. Arm’s Compute Subsystems (CSS) enable faster time-to-market for smartphone and data center partners, while collaborations with top cloud providers and automotive firms are growing Arm’s market share.
Arm collaborated with Meta to optimize the Llama 3.2 language model for Arm-based chips, improving processing times and user privacy. Arm expects Q3 2025 growth driven by demand for high-performance, energy-efficient computing solutions, with estimates between $920 million and $970 million.
Arm Holdings Q2 2025 Earnings: A Detailed Analysis of Growth Drivers and Future Prospects
Analyst Take: Arm Holdings’ Q2 2025 performance demonstrates the company’s capacity to perform by focusing on AI and efficient computing solutions across multiple industries. The 23% rise in royalty income, attributed primarily to Armv9, highlights Arm’s strategic decision to focus on energy-efficient, AI-friendly technologies. As Compute Subsystems gain popularity among partners, Arm’s commitment to reducing development time and costs provides a substantial advantage as chip complexity rises.
The company’s ongoing investment in its ecosystem and collaborations is also notable, particularly in the data center and automotive industries, where Arm-based solutions satisfy the demands for both performance and sustainability. Despite a minor decrease in operating margin due to greater R&D costs, Arm’s stable financial position and positive sales outlook for the third quarter demonstrate confidence in its development strategy. If it meets its projections for the next quarter, we will see Arm’s significantly lower revenue than last quarter as a blip rather than a trend.
Financial Performance Despite Rising Expenses
In the second quarter of fiscal year 2025, Arm announced a total revenue of $844 million, a 5% increase compared to last year. This growth was mainly due to a record high in royalty revenue, which jumped by 23% to $514 million. This rise is primarily because of the quick adoption of Armv9 technology in different areas like mobile, IoT, and automotive. Armv9, the newest architecture from the company, is now essential for AI-driven devices, making up about 25% of Arm’s royalty revenue – a significant jump from 10% the year before.
Even though Arm had strong revenue results, its operating margin was under pressure because of increased spending on engineering and hiring, especially in its research and development (R&D) department. The non-GAAP operating income for the quarter was $326 million, with an operating margin of 38.6%, lower than 47.6% in the previous year. The company’s plan to boost its R&D capabilities is a long-term strategy, and I would say the required strategy, to stay competitive in emerging markets. Given the rapidly evolving AI hardware and software landscape, Arm cannot slow its innovation agenda now.
Expanding Market Presence Across Sectors with Armv9 Architecture
The Armv9-based MediaTek Dimensity 9400 CPU reveals its performance benefits. Compared to previous platforms, this CPU increases peak performance by 36% and AI inference by 59%, increasing customer and device manufacturer demand. Apple’s iPhone 16 uses Arm’s technology, which boosted smartphone processor royalty earnings during the quarter. This cross-sector adoption shows Armv9’s versatility and should set up Arm to gain market share in the AI-driven device ecosystem.
Data Center Expansion: Arm-Based Solutions for High-Performance Computing
Arm’s expansion into the data center industry represents another big growth opportunity. Microsoft, Google, and Amazon Web Services (AWS) now deliver Arm-based data center systems, establishing Arm’s footprint among all major hyperscalers. Microsoft’s Azure Cobalt 100 and Google’s Axion chips demonstrate Arm’s cost-efficiency and energy-saving capabilities. Google’s Axion chip, for example, outperforms equivalent x86-based instances by 65% in price and 60% in energy efficiency, making it ideal for high-demand workloads and data-intensive applications.
Another significant advancement in the sector is NVIDIA’s Grace Blackwell Superchips, which combine NVIDIA’s high-performance accelerators with Arm-based CPUs for improved data center operations. This collaboration elevates Arm’s position in the high-performance computing (HPC) area, as NVIDIA’s products are employed in some of the most demanding data center environments worldwide.
Looking Forward
Arm’s Q2 FY25 earnings demonstrate its resiliency and strategic insight in a fast-changing technology environment. Arm is well-positioned to benefit from the digital transformation with solid sales growth, significant demand for Armv9 and CSS platforms, and expanding alliances across AI, automotive, and data center sectors. Arm’s technological stack and ecosystem should support continuous growth as the industry shifts toward high-performance and energy-efficient solutions.
You can read the full earnings report on the Arm website.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Arm’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosures: During the preparation of this work the authors and analysts used ChatGPT to research the company and the market. After using this tool/service, the author reviewed and edited the content as needed and takes full responsibility for the content of the publication.
The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The analyst has a small equity position in Arm Holdings.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Dr. Bob Sutor is a Consulting Analyst for Futurum and an expert in quantum technologies with 40+ years of experience. He is an accomplished author of the quantum computing book Dancing with Qubits, Second Edition. Bob is dedicated to evolving quantum to help solve society's critical computational problems. For Futurum, he helps clients understand sophisticated technologies and how to make the best use of them for success in their organizations and industries.
He’s the author of a book about quantum computing called Dancing with Qubits, which was published in 2019, with the Second Edition released in March 2024. He is also the author of the 2021 book Dancing with Python, an introduction to Python coding for classical and quantum computing. Areas in which he’s worked: quantum computing, AI, blockchain, mathematics and mathematical software, Linux, open source, standards management, product management and marketing, computer algebra, and web standards.
