Rosenblatt and Guggenheim analysts see stronger licensing, growing data-center royalties and Arm Holdings' upcoming AGI server CPU offsetting near-term smartphone weakness. Rosenblatt analyst Kevin Cassidy retained a Buy rating and a $250 price target, citing licensing momentum and increasing server exposure. Guggenheim analyst John DiFucci retained a Buy rating and a $255 price target.
Arm reported fiscal second-quarter revenue of $1,443 million, a 27% year-over-year increase, exceeding Rosenblatt's $1,380 million estimate and consensus of $1,378 million. License and other revenue reached $773 million after rising 50%. Royalty revenue reached $670 million after increasing 8%. Non-GAAP operating margin reached 44.2%, an expansion of 310 basis points. Adjusted earnings per share reached $0.52, exceeding Rosenblatt's $0.47 estimate and consensus of $0.48. Guggenheim noted that non-GAAP operating income of $638 million exceeded consensus of $573 million.
Cassidy said data-center royalties increased twofold year over year because hyperscalers adopted Arm technology and Arm CPU content increased. Management expects Arm-based CPUs to account for more than 60% of CPUs at leading hyperscalers by calendar 2026's end, versus more than 50% in 2025. Cassidy said initial commercial shipments of the AGI server CPU remain scheduled for fiscal 2027's fourth quarter. Arm has obtained purchase orders covering deliveries through calendar 2027. Arm increased confidence in generating up to $2 billion in AGI CPU revenue across fiscal 2027 and 2028, versus more than $1 billion previously.
DiFucci said second-quarter revenue exceeded Wall Street expectations by about 5%, mainly because license revenue exceeded consensus by 16%. Arm told investors that customers accelerated long-term commitments, pushing licensing revenue roughly $100 million above expectations. Arm completed three additional Arm Total Access agreements, bringing the active total above 60. Arm added four CSS licenses, split equally between data centers and smartphones. DiFucci highlighted the doubling of data-center royalties and 50% growth in physical AI royalties, supported by automotive and robotics adoption.
However, edge royalties showed no growth because higher memory prices weighed on smartphone shipments, with higher Armv9 and CSS royalty rates providing a partial offset. Free cash flow totaled $110 million, substantially below Wall Street's $350 million estimate. DiFucci attributed the shortfall to working-capital changes that DiFucci expects to reverse during the next several quarters. DiFucci said continued growth in cloud AI and physical AI should partly offset weaker smartphone demand.
Arm forecast fiscal third-quarter revenue of $1.54 billion, with a $50 million range on either side. The revenue guidance implies approximately 24% year-over-year growth at the midpoint. Management expects license revenue growth slightly above 50% year over year. Management expects royalty revenue growth in the low teens sequentially and in the low single digits year over year.
Rosenblatt increased fiscal third-quarter estimates to revenue of $1.54 billion and earnings per share of $0.56. Rosenblatt increased fiscal 2027 estimates to revenue of $6,122 million and earnings per share of $2.26. Cassidy increased the fiscal 2028 revenue estimate to $8.17 billion. However, Cassidy reduced the fiscal 2028 earnings-per-share estimate to $3.05. Cassidy based the $250 target on a multiple of 75 times the fiscal 2028 non-GAAP earnings-per-share framework. DiFucci derived the $255 valuation from a discounted cash flow model assuming a longer hyper-growth period than Guggenheim normally uses for software companies.
Benzinga Pro data showed Arm shares trading at $164.42, down 14.28%, on Thursday at publication.
ARM Reports Strong Q2 Revenue Amid AI Server Growth Outlook
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Summary
ARM Holdings reported Q2 revenue of $1,443 million, up 27% year-over-year, fueled by AI-driven data-center royalties and licensing. Analysts from Rosenblatt and Guggenheim reaffirmed Buy ratings, pointing to AI + crypto news and ecosystem growth potential. Management forecasts Arm-based CPUs to capture over 60% of leading hyperscaler use by 2026. The AGI server CPU will see initial shipments in Q4 2027, with orders set through 2027. Q3 revenue guidance stands at $1.54 billion, reflecting 24% year-over-year growth.
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