Full Transcript of Arm 2027 Q1 Earnings Call (Core Highlights Summary)

Arm Holdings released its Q1 FY2027 financial results (for the period ending June 30, 2026) on July 29, 2026, and held an analyst conference call on the same day. Overall, the company presented a complex picture of “across-the-board earnings beats, explosive demand for AI CPUs, but weak smartphone business weighing on short-term guidance.”

1. Key Financial Data

Revenue of $1.29 billion set a Q1 all-time high for the company. Non-GAAP operating expenses were $733 million, an 18% YoY increase, but about $27 million lower than company guidance.

Strong full-year free cash flow: $665 million this quarter, totaling $1.4 billion over the past 12 months.

2. Business Highlights and Core Contents of the Conference Call

1. AI CPU Demand Explosion—Jump from $1 Billion to $2 Billion

This was the most important highlight of the call. Arm launched the Arm AGI CPU (a dedicated computing product for AI workloads) in March 2026, with an initial target of $1 billion in business in FY2027–2028. However, CEO Rene Haas disclosed on the call:

Customer demand has now exceeded $2 billion, and the company’s confidence in achieving the $1 billion opportunity has increased significantly.

This means that just four months after its launch, demand expectations for the Arm AGI CPU have doubled. The initial products have been delivered to multiple customers, with Oracle confirmed as one of the AGI CPU clients. The company is working closely with manufacturing and supply chain partners to ramp up production capacity.

However, supply bottlenecks remain: Constraints in wafers, substrates, testing capacity, and memory component supplies are still limiting near-term revenue potential. The gross margin for the first AGI CPUs is expected to be in the high 30% to low 40% range, below the company's long-term target of 50%. The company expects to provide more clarity on revenue and gross margins after Q3.

2. Data Center—Royalty Revenue Doubles, Neoverse Shipments Surpass 1.5 Billion Cores

The data center segment is the largest driver of royalty revenue growth. Data center royalty revenue more than doubled YoY.

Arm Neoverse core shipments have exceeded 1.5 billion cumulatively, with the latest 500 million achieved in just nine months, compared to six years for the first 1 billion. This acceleration powerfully demonstrates the exponential adoption of Arm architecture in AI infrastructure.

The customer base includes major tech giants such as NVIDIA, Google, Amazon, Microsoft, and Oracle.

3. Smartphones—The Biggest “Headwind”

Management candidly acknowledged weakness in the smartphone business on the call. Due to a rise in memory prices, projected royalty revenue growth for smartphones has been lowered from about 20% for the full year to a high-teens percentage.

However, the adoption of the Armv9 architecture and compute subsystems is pushing up per-device royalty rates, partially offsetting weakness in unit volumes.

4. Edge and Physical AI—The Next Growth Frontier

Management emphasized that AI is expanding into PCs, edge devices, and the physical world (robots, industrial automation, etc.), with more and more customers choosing Arm computing platforms as the standard.

3. Q2 FY2027 Performance Guidance

The revenue guidance range is $1.33–1.43 billion, with a midpoint of $1.38 billion. While beating analyst consensus, it does not reach the most optimistic market expectations.

License revenue is expected to grow by around 30% YoY. Management made it clear that smartphone royalty revenue will fall in the next quarter.

4. Core Judgment

The essence of Arm’s results this quarter is: the AI long-term narrative is reinforced across the board, but near-term weakness in smartphones is dampening market sentiment.

In the long term, the doubling of data center royalties, the acceleration of Neoverse shipments (500 million cores in 9 months), and the jump in AGI CPU demand from $1 billion to $2 billion—all point to Arm’s core position in the AI computing era being rapidly cemented.

In the short term, weakness in the smartphone business (hit by rising memory prices), AGI CPU supply chain bottlenecks and low gross margins, and Q2 guidance falling short of the most optimistic estimates—all three have combined to suppress share price performance.

Arm is at a crossroads of “extremely clear long-term logic but unavoidable short-term noise.” The market has chosen to punish slight guidance misses rather than reward earnings beats, reflecting zero tolerance for any disappointment at a 278x P/E, rather than a denial of the AI long-term thesis.

Arm Holdings plc (ARM) FY2027 Q1 Earnings Conference Call

Company Participants

Ian Thornton — Vice President of Investor Relations

Rene Haas — CEO & Director

Jason Child — EVP & CFO

Conference Call Participants

Presentation

Operator

Hello everyone, thank you for your patience. Welcome to Arm’s FY2027 Q1 webcast and conference call. Please note, this call is being recorded. Now, please welcome today’s first speaker, Vice President of Investor Relations, Mr. Ian Thornton.

Ian Thornton, Vice President of Investor Relations

Thank you all for joining our FY2027 Q1 earnings call. On the call today are Arm CEO Rene Haas and Arm CFO Jason Child.

Thank you, Ian, and welcome everyone. Arm achieved record Q1 results, starting off FY2027 strongly. Our performance reflects the continuing and growing demand for the Arm computing platform, as AI expands into cloud infrastructure, edge devices, and the physical world.

Revenue reached $1.29 billion, up 22% year-on-year, driven by record Q1 license and royalty income. Royalty income rose 22% to $715 million. License revenue grew 23% to $574 million; non-GAAP earnings per share increased 29% to $0.45, above the upper end of our previous guidance.

AI is changing both where and how computing happens. We have already observed this trend in data centers, where migration to the Arm architecture is accelerating. Meanwhile, as AI extends to PCs, smartphones, and physical AI applications, this trend is increasingly evident outside data centers as well. Across all these markets, customers are rapidly turning to Arm computing platforms as the standard choice.

These trends are driving growing demand for the Arm AGI CPU. We launched Arm AGI CPU in March, providing another way for customers to deploy the Arm platform. Since launch, we’ve made significant progress: the first products have now been delivered to multiple customers, and we have secured the required capacity to support the $1 billion FY2027 and FY2028 market opportunity outlined last quarter.

Now, demand has exceeded $2 billion. We continue to add new customers in both the US and China, with the overall sales pipeline continuing to strengthen. We are also working closely with manufacturing and supply chain partners to ramp capacity. In the past 90 days, our confidence in not only achieving the $1 billion AGI CPU business opportunity but surpassing that target has further increased.

This momentum is part of a broad transformation occurring across our Neoverse business. With adoption of Arm Neoverse broadening, data center royalty income has doubled again YoY. Arm’s progress as the AI infrastructure CPU foundation is accelerating. Total cumulative Arm Neoverse shipments now exceed 1.5 billion cores, with the last 500 million shipped in just 9 months, compared to the 6 years it took to reach the first 1 billion.

Global leading AI infrastructure providers continue to validate this trend. NVIDIA has started production with Vera, built on the Arm architecture. Vera’s CPU delivers up to 50% more performance than comparable x86 systems, with 2x energy efficiency, and will be the CPU foundation of NVIDIA’s next-generation AI infrastructure. Google has said its Arm-based Axion CPU is a core part of its AI infrastructure strategy and the host CPU for its latest TPU AI system.

AWS announced plans to deploy tens of millions of Graviton5 cores to power agent AI workloads. Microsoft also expanded its Azure Cobalt 200 VMs based on Arm Neoverse CSS architecture. In addition, Qualcomm announced it will compete in the AI data center CPU market with its Arm-based Dragonfly C1000 processors. Each of these companies takes a different path to building AI infrastructure, but they are united in direction.

Arm-based CPUs are increasingly at the core of the next generation of AI infrastructure. We are witnessing the rapid expansion of AI infrastructure and Arm’s increasingly important position in it. Our opportunity extends well beyond the data center.

As AI enters production, customers are increasingly focused on the economics of deploying AI at scale. Whether AI operates in the cloud, at the edge, or eventually extends into the physical world, efficient compute has become as important as model capability—which is exactly where Arm has always been differentiated.

From cloud infrastructure to personal computers to physical AI, developers can use the same Arm architecture and software ecosystem. Customers can deploy Arm technology through IP, compute subsystems, or chips, whichever best fits their business model. But in all cases, they’re relying on the same Arm platform, the same software ecosystem, and the same developer community.

As AI makes its way into every cloud, every device, and every industry, the entire industry is increasingly converging on one general-purpose computing platform. AI is changing where and how computing happens, and Arm is at the heart of this transformation.

Jason Child, Executive Vice President & Chief Financial Officer

Thank you, Rene. We started FY2027 with another strong quarter, delivering record first-quarter revenue. Total revenue grew 22% YoY to $1.29 billion. Royalty income also grew 22% YoY to $715 million, setting a new Q1 high.

Data center royalty income continued to accomplish more than double YoY growth, highlighting our strong momentum across the market. Despite weakness in the smartphone end-market, edge AI license income continued to grow.

We continue to benefit from higher royalty rates, thanks to further penetration of the Armv9 architecture and compute subsystems in smartphones, tablets, and other consumer devices. Physical AI has also contributed significantly to royalty growth.

License and other income reached $574 million, up 23% YoY—a new Q1 record. Growth was mainly driven by strong demand for the next-generation architecture and deeper strategic collaborations with key customers.

Customer demand for the Arm AGI CPU remains robust. More customers want to place orders with us this quarter. We have secured the capacity to support the initial $1 billion opportunity and have made progress in ensuring more supply, optimizing customer mix, and improving business terms.

Non-GAAP operating expense was $733 million, up 18% YoY, primarily due to continued increases in R&D investment. Non-GAAP operating margin was about 41%, an increase of 200 basis points. Non-GAAP EPS was $0.45. Free cash flow for the quarter was $665 million, with $1.4 billion over the past 12 months.

For the second quarter, we expect revenue of $1.38 billion, plus or minus $50 million. We expect license and other income to grow about 30% YoY, and royalty income to grow in the low double digits. Non-GAAP operating expense will be about $780 million, and non-GAAP EPS will be $0.47, plus or minus $0.04.

Question-and-Answer Session

Operator

This concludes today’s Q&A session. Thank you for your participation. The call is now concluded.