Analyst(s): Futurum Research
Publication Date: November 10, 2025

Arm’s Q2 FY 2026 update underscores accelerating AI adoption across data center, smartphones, and edge, with Armv9 and CSS driving both licensing and royalty uplift. Management emphasized growing hyperscaler deployments and deeper strategic engagements that improve revenue quality and visibility into H2 FY 2026.

What is Covered in this Article:

• Arm’s Q2 FY 2026 financial results
• Neoverse traction in hyperscale data centers
• CSS adoption expanding across mobile and edge
• Licensing ACV growth and ecosystem scale
• Guidance and Final Thoughts

The News: Arm Holdings (NASDAQ: ARM) reported Q2 FY 2026 revenue of $1.1 billion, up 34% year-on-year (YoY), versus the Wall Street consensus of $1.1 billion. Segment results: licensing revenue was $515.0 million (up 56% YoY) and royalty revenue was $620.0 million (up 21% YoY). Non-GAAP operating income was $467.0 million with a non-GAAP operating margin of 41.1% (Q2 FY 2025: 38.6%). Non-GAAP net income was $417.0 million (Q2 FY 2025: $317 million) and non-GAAP EPS was $0.39 (Q2 FY 2025: $0.30).

“Customers are increasingly deploying Arm Neoverse CPUs alongside their AI accelerators to orchestrate massive clusters, highlighting the versatility and scalability of our platform,” said Rene Haas, chief executive officer, Arm. “The addition of five new Stargate sites this quarter further expands visibility into future AI capacity and reinforces Arm’s central role in the hyperscale build-out.”

Arm Q2 FY 2026 Earnings Highlight AI-Driven Royalty Momentum

Analyst Take: Arm’s Q2 FY 2026 results reflect a durable mix shift toward higher-value licensing and structurally higher royalty rates, tied to Armv9 upgrades, Neoverse penetration in hyperscale, and faster CSS-led time-to-market. The company’s narrative is increasingly about compute platforms and subsystems that de-risk execution for customers while expanding Arm’s royalty take per chip. With data center royalties doubling YoY and smartphone royalty growth outpacing the market, Arm is benefiting from both volume and value levers. Combined with 28% YoY growth in licensing ACV and expanding strategic agreements, Arm’s setup into Q3 points to sustained momentum.

Data Center Upside and Neoverse Share Gains

Arm highlighted continued share gains in hyperscale, with data center royalties doubling YoY as custom Arm-based CPUs scale across deployments. Management cited broad adoption spanning AWS Graviton, Google Axion, Microsoft Cobalt, and NVIDIA Grace, with customers increasingly pairing Neoverse CPUs alongside AI accelerators to orchestrate large clusters. Google noted Axion’s up to 65% better price-performance and 60% lower energy usage, a profile aligned with power-constrained facilities. Management also referenced growing visibility from additional Stargate sites, indicating future capacity buildouts where Arm platforms can participate across compute and infrastructure layers. With Neoverse CPUs surpassing one billion units deployed, the data center flywheel is strengthening, and continued hyperscaler ramps should support royalty durability.

CSS as a Royalty Multiplier Across Mobile and Edge

Compute Subsystems (CSS) are becoming a default starting point for next-generation silicon, compressing schedules and elevating royalty rates. Arm signed three new CSS licenses in the quarter (smartphone, tablet, data center), bringing total CSS licenses to 19 across 11 companies, and noted demand continues to exceed expectations. The expansion with Samsung to leverage CSS in Exynos, and shipments from the top four Android vendors with CSS-powered devices, underline CSS’s role in mobile mix upgrades. The launch of Lumex CSS targets rich on-device AI experiences (e.g., real-time translation, image enhancement), with expected ramps from partners like Oppo and Vivo later this year. As CSS adoption deepens, Arm captures more of the system value chain, which should raise average royalty per device over time.

Licensing Momentum, Ecosystem Scale, and R&D Investment

License and other revenue rose 56% YoY to $515.0 million, supported by next-gen architectures (Armv9), CSS, and deeper customer engagements, including four Arm Total Access (ATA) and three CSS deals. Annualized contract value (ACV) grew 28% YoY for a second consecutive quarter, outpacing Arm’s long-term mid-to-high single-digit licensing outlook and improving forward visibility. The developer ecosystem now exceeds 22 million, which management views as a growth engine that compounds software availability and platform relevance. Non-GAAP operating expenses were $648.0 million, up 31% YoY, reflecting sustained R&D investments into architectures, CSS, and potential chiplets/complex SoCs. The company’s move up the stack—while increasing opex—enhances stickiness and ups Arm’s value capture.

Guidance and Final Thoughts

For Q3 FY 2026, Arm guided revenue to $1.18 billion–$1.28 billion (midpoint $1.23 billion vs. consensus $1.11 billion) and non-GAAP EPS to $0.37–$0.45 (consensus $0.35), with non-GAAP operating expenses of about $720.0 million. The outlook points to continued uptake of Armv9 and Neoverse, ongoing CSS-driven mix benefits, and sustained data center momentum amid power-constrained buildouts. With licensing ACV growth at 28% YoY and higher royalty rates per chip in smartphones and servers, Arm enters H2 FY 2026 with constructive trends across end markets. Execution focus remains on expanding platform scope, accelerating CSS ramps, and scaling ecosystem software to unlock on-device AI experiences.

See the full press release on Arm’s Q2 FY 2026 financial results on the company website.

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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 Futurum as a whole.

Other insights from Futurum:

Arm Q1 FY26 Earnings: Revenue Surpasses $1B on Surging AI and Cloud Demand

Arm’s Lumex CSS Aims To Accelerate On-Device AI Innovation

Qualcomm’s Arm-Based Data Center CPUs To Smoothly Integrate With NVIDIA

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