Arm Surges 6% as AI Demand Fuels 20% Revenue Growth

Arm Holdings Plc gave a strong sales forecast and reported a more than $2 billion order pipeline for its new AI-focused processor design, showing its strategic pivot to the data center market is offsetting a slowdown in smartphones. The stock climbed about 6% in after-hours trading.

Management said in its quarterly report that demand for high-efficiency CPU designs is accelerating in AI data centers, where power consumption and heat management are becoming critical constraints. This trend plays directly to the strengths of Arm’s architecture, which has long dominated the power-constrained mobile phone market.

For its fiscal fourth quarter, the UK-based chip designer reported revenue of $1.49 billion, a 20.2 percent year-over-year increase that surpassed analyst estimates. Adjusted earnings were 60 cents per share. The growth reflects a sharp divergence in its business lines: licensing and other revenue jumped 29 percent to $819 million, while royalty income, which is tied to shipment volumes, grew a more modest 11 percent to $671 million.

The results underscore Arm’s successful push into the high-margin data center market, a territory long dominated by Intel Corp. and Advanced Micro Devices Inc. While the company’s architecture is used in nearly every smartphone, a market facing headwinds from tight memory supply, investors are now focused on its potential to capture a significant share of the processing in AI servers.

Data Center Gains Offset Mobile Weakness

The contrast between Arm’s two main revenue streams highlights a broader industry trend. While royalty income is under pressure from a weak mobile device market—a sentiment echoed by mobile chip supplier Qualcomm Inc.—customers are eagerly paying upfront licensing fees to secure access to Arm’s next-generation designs for their future AI products. This provides Arm with a predictable, forward-looking revenue stream that is less correlated with immediate consumer electronics sales.

The company’s adjusted gross margin reached 98.3 percent in the quarter, with an adjusted operating margin of 49.1 percent, reflecting the high profitability of its licensing model. For the first fiscal quarter, Arm projected revenue of about $1.29 billion and adjusted earnings per share between 36 cents and 44 cents, figures that also topped analyst forecasts.

A $2 Billion Bet on AGI

The most significant disclosure was the strong early demand for the company’s forthcoming AGI CPU, a processor design aimed specifically at artificial general intelligence workloads. Arm revealed customer demand for this product for fiscal years 2027 and 2028 has already exceeded $2 billion.

While the company noted that the AGI CPU faces supply constraints that will limit its initial rollout, the demand figure provides tangible evidence that major data center operators are buying into Arm's value proposition. As AI models become more complex, the demand for computation is expanding beyond specialized graphics processors from companies like Nvidia Corp. to include general-purpose CPUs that manage scheduling, memory, and networking. The stock’s post-earnings jump suggests investors are pricing in this future growth, validating Arm’s strategy to become a key player in the infrastructure that powers AI.

This article is for informational purposes only and does not constitute investment advice.