Arm’s revenue rose 27% to $1.44 billion in the quarter to September 2026, beating forecasts as licence revenue grew 50%. Royalties rose only 8% and fell short of expectations as higher memory prices hurt smartphone shipments, while data-centre royalties doubled.
Global Economy Charts Research Desk | November 5, 2026
Key indicators
| Indicator | Reading | Context |
|---|---|---|
| Total revenue | $1,443m | +27% y/y; LSEG consensus $1.38bn |
| Licence and other revenue | $773m | +50% y/y; LSEG consensus $625m |
| Royalty revenue | $670m | +8% y/y; LSEG consensus $721m |
| Non-GAAP diluted EPS | $0.52 | Q2 FYE26: $0.39; LSEG $0.47; GAAP $0.12 |
| Q3 FYE27 revenue guidance | $1.54bn ±$50m | LSEG $1.53bn; non-GAAP EPS $0.56 ±$0.04 |
It was Arm’s best second quarter and its fifth consecutive quarter of growth above 20%. Non-GAAP operating income rose 37% to $638 million, a margin of 44.2%, while GAAP net income fell to $130 million because the year-earlier quarter included a gain on a disposal. Reuters reported that the shares were about 3.5% lower in extended trading.
1. Licensing drives the beat
Licence and other revenue rose 50% to $773 million, well above the $625 million LSEG estimate. Arm signed four new Compute Subsystems licences, two for data centres and two for smartphones, according to Reuters. Annualised contract value rose 12% to $1.79 billion. Separately, revenue from SoftBank affiliates under a consulting agreement was $209 million in the quarter, up from $178 million a year earlier.
2. Royalties slow as smartphones weaken
Royalty revenue rose 8% to $670 million, below the $721 million expected and down from $715 million in the previous quarter. Arm said growth was partly offset by the impact of memory pricing on the smartphone market. Data-centre royalties doubled, physical AI royalties rose 50% and partners shipped more than 10 billion Arm-based chips. Higher royalty rates per chip from the Armv9 architecture and Compute Subsystems also supported revenue.
3. The data centre and Arm’s own chip
Arm said its share of servers at the largest hyperscalers rose from 15% in 2024 to more than 50% in 2025 and should exceed 60% by the end of 2026. Its own AGI CPU has purchase orders from several customers through 2027, with first commercial deliveries due in the fourth fiscal quarter. Arm repeated that it sees up to $2 billion of AGI CPU revenue over fiscal 2027 and 2028.
4. Guidance and the China exposure
Arm guided third-quarter revenue of $1.54 billion, plus or minus $50 million, marginally above the $1.53 billion consensus, and non-GAAP EPS of $0.56. Executives told analysts that royalties should grow only by low single digits next quarter. Revenue from customers headquartered in China fell to $213 million from $250 million, while US revenue rose to $556 million. Non-GAAP free cash flow fell to $110 million from $411 million.
Scenarios to watch
If data-centre royalties keep doubling, they could offset weaker smartphone volumes, but memory costs may keep handset shipments under pressure into 2027. Delivery of the first AGI CPUs will test whether Arm can sell its own chips without unsettling its licensees. Licence revenue will stay lumpy from quarter to quarter. These are scenarios for monitoring, not forecasts or investment advice.
Sources and methodology
Arm, Q2 FYE27 shareholder letter, 4 November 2026; Arm, Form 6-K for the period to 30 September 2026; Arm, Q4 FYE26 shareholder letter, 6 May 2026; Arm press release, 4 November 2026; Reuters, 4 November 2026. Reported figures are distinguished from forecasts and GEC calculations. Charts use the values and units shown; scales start at zero except where negative values or index thresholds require otherwise. Interpretive sections are GEC analysis, not company or central-bank forecasts.
Thumbnail: AI-generated editorial illustration. Figures are rounded for readability; some releases may be preliminary or subject to revision.
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