Arm posted record first-quarter results with $1.29 billion in revenue, up 22%, driven by accelerating adoption of Arm-based CPUs in data center AI infrastructure across major hyperscalers like NVIDIA, Google, AWS, and Microsoft.
Demand for Arm's purpose-built AGI CPU now exceeds $2 billion for fiscal 2027 and 2028, double the company's prior guidance.
While data center and AI expansion remains the primary growth engine, the smartphone market faces pressure from rising memory costs, prompting Arm to lower its full-year smartphone royalty growth guidance.
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.
Arm reported first-quarter fiscal 2027 revenue of $1.29 billion, a 22% year-over-year increase, marking record performance in both licensing and royalty streams. Royalty revenue reached $715 million, up 22%, supported by higher royalty rates for Armv9 architecture and accelerated data center adoption. Licensing revenue grew 23% to $574 million, driven by high-value agreement renewals with handset OEMs, automotive, and robotics companies. Non-GAAP EPS increased 29% to $0.45, exceeding the high end of management's guidance.
The growth is anchored in a dramatic acceleration of Arm adoption in AI data centers. CEO Rene Haas highlighted that Arm Neoverse core shipments have surpassed 1.5 billion total cores, with the most recent 500 million cores shipping in just nine months compared to six years for the first one billion. Data center royalties more than doubled year-over-year, driven by the ramp of Arm-based server chips at major hyperscalers and increased deployment of networking chips like DPUs (Data Processing Units). According to IDC data cited by Arm, spending on Arm-based accelerated server platforms has nearly doubled in the past two quarters and now surpasses x86 platforms.
Arm's Arm AGI CPU, a purpose-built silicon product introduced in March for AI and high-performance computing workloads, has already exceeded initial expectations. The company initially outlined a $1 billion opportunity for fiscal 2027 and fiscal 2028, but demand has now grown to exceed $2 billion as new customers in the U.S. and China have been added. Initial product has been delivered to multiple customers, and manufacturing capacity has been secured. Haas stated that "our confidence in achieving upside to our $1 billion opportunity for the Arm AGI CPU business has increased in the past 90 days." The AGI CPU is designed with 128 cores for current designs, with next-generation products expected to increase core counts to support agentic AI workloads.
Major technology companies are now standardizing on Arm-based CPUs for AI infrastructure. NVIDIA has brought Vera into production—built on Arm, it delivers up to 50% higher CPU performance and 2× greater energy efficiency than comparable x86 systems and will serve as the CPU foundation for NVIDIA's next-generation AI infrastructure. Google stated that its Arm-based Axion CPU is a core component of its AI infrastructure strategy and the host CPU for its latest TPU AI systems. AWS announced plans to deploy tens of millions of Graviton5 cores to power agentic AI workloads. Microsoft expanded Azure Cobalt 200 virtual machines built on Arm Neoverse CSS (Compute Subsystems). Qualcomm announced plans to enter the AI data center CPU market with Arm-based Dragonfly C1000.
However, the smartphone market is facing headwinds. CFO Jason Child stated, "We have seen some incremental slowdown versus what was expected at the beginning of the year," noting that higher memory prices are affecting demand and mix across all segments of the smartphone market. As a result, Arm revised its smartphone royalty outlook from previous 20% estimates to high teens growth for the fiscal year. Child also noted that supply chain complexity remains a constraint: "Making a chip is complex relative to supply chain. You have wafers, you have substrates, you have test capacity, you have memory and all of those areas," though he added that confidence in supply has increased despite the market remaining tight across critical components.
Annualized Contract Value (ACV) reached $1,732 million, a 13% increase reflecting sustained momentum in long-term strategic licensing engagements. Free cash flow totaled $665 million for the quarter, bringing the trailing 12-month total to $1.4 billion. Non-GAAP operating margin expanded to 41.2%, up 200 basis points, reflecting disciplined expense management despite ongoing R&D investment. Cash and short-term investments stood at $3.89 billion. For Q2, Arm provided revenue guidance of $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 as a separate reporting line in fiscal 2028 once it exceeds 10% of total revenue.
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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