What happened
Arm reported first-quarter revenue of $1.29 billion, a 22% year-over-year increase, with royalty revenue at $715 million (up 22%) and licensing revenue at $574 million (up 23%). Non-GAAP earnings per share reached $0.45, up 29% and exceeding guidance. Demand for Arm's AGI CPU (purpose-built silicon for AI) now exceeds $2 billion for fiscal 2027 and 2028, doubling the $1 billion opportunity outlined last quarter.
Why it matters
Arm's growth is being driven by a fundamental shift in AI infrastructure—hyperscalers including NVIDIA, Google, AWS, and Microsoft are standardizing on Arm-based CPUs instead of traditional x86 processors for data center AI workloads. IDC data shows spending on Arm-based accelerated server platforms has nearly doubled in the past two quarters and now surpasses x86 platforms, signaling that Arm is becoming the default CPU foundation for next-generation AI systems. However, the smartphone market faces headwinds: CFO Jason Child noted incremental slowdown due to higher memory prices affecting demand and mix across all smartphone segments, leading Arm to revise smartphone royalty growth guidance from 20% to high teens for the fiscal year.
What to watch
Q2 revenue guidance is $1.38 billion (plus or minus $50 million), representing approximately 22% growth at the midpoint, with licensing expected to increase approximately 30% year-over-year and royalties projected to grow in the low teens. Arm plans to break out silicon (the AGI CPU business) as a separate revenue line starting in fiscal 2028 once it reaches 10% of total revenue. Arm Neoverse core shipments have surpassed 1.5 billion total, with the most recent 500 million cores shipping in nine months—compared to six years for the first one billion.
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Arm's record first quarter reflects a structural shift in how AI infrastructure is being built. The company's 22% revenue growth is almost entirely driven by data center adoption of Arm-based CPUs for AI workloads, a trend that has accelerated dramatically. The most concrete evidence is the Neoverse core shipment cadence: the most recent 500 million cores shipped in just nine months, compared to six years for the first one billion cores—demonstrating an 8× acceleration in deployment speed. This acceleration mirrors the urgency with which hyperscalers are deploying AI infrastructure; companies like NVIDIA, Google, AWS, Microsoft, and Qualcomm are all moving toward Arm-based CPUs simultaneously, which would have been unthinkable just two years ago when x86 dominated data centers.
The AGI CPU business, while still a small contributor to total revenue, is where Arm sees its highest upside. Demand has already doubled from $1 billion to over $2 billion within a single quarter, and the company has secured manufacturing capacity to support this surge. However, this silicon-as-a-product business model also introduces execution risk: as CEO Rene Haas and CFO Child noted, chip manufacturing depends on a complex supply chain spanning wafers, substrates, test capacity, and memory, all of which remain tight in the current market.
The smartphone market presents a countervailing headwind. While smartphones historically drove the bulk of Arm's royalty revenue, rising memory costs and handset price inflation are dampening demand—hence the downgrade from 20% to high-teens growth guidance. This suggests that Arm's near-term growth story is now primarily a data center and AI story rather than a mobile story, a reversal of the company's historical narrative. The long-term viability of this pivot will depend on whether data center and AI demand can offset any sustained smartphone weakness.
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