Arteris, Inc. (AIP) | The Buildout — AI Infrastructure

The Verdict

Arteris sells semiconductor system IP — the interconnect, or Network-on-Chip, that moves data between the processor, memory and accelerator blocks inside a chip. It also sells software that automates how a chip is assembled, and, after a January 2026 acquisition, hardware security verification software. It does not make chips, own fabs, or run data centers; it licenses the design and collects royalties when customer chips ship in volume. As AI chips grow more complex and split into chiplets, the data-movement layer it sells becomes a harder design problem, which is the company's pitch.

Earnings Beat

Arteris reported Q2 FY2026 revenue of $24.1M, up 46% YoY and above the top end of guidance, at a non-GAAP gross margin of 87%. The standout was ACV plus royalties, which set a record at $99.5M, up 44% YoY. RPO reached an all-time high of $135M, and the non-GAAP operating loss of $4.6M came in wider than the $3M–$2M guided.

Management tone: Management's tone stayed constructive, and its language on data center sharpened from Q1 to Q2 — from enterprise computing as 'again the biggest contributor to our licensing activity' to a hyperscaler that chose to 'standardize on' Arteris system IP. Management led with record top-line results and raised FY revenue guidance while directly explaining the Q2 non-GAAP operating-loss miss and the cut to the FY loss guide. On the cost miss, the CFO described it as a forecasting error the company should have anticipated.

Management Guidance

For FY2026, management guides revenue of $95M–$98M (37% YoY at the midpoint) and an ACV-plus-royalties exit of $102M–$106M. Non-GAAP operating loss is guided to $10M–$7M, widened from $8.5M–$4.5M, which management attributes to higher French employer payroll taxes on RSU vesting, lower-margin government/Cycuity mix, and higher sales and FAE commissions. Non-GAAP free cash flow is guided to +$5M to +$9M. For Q3 FY2026: revenue $24M–$25M, ACV plus royalties $99M–$103M, non-GAAP operating loss $3M–$1M. Management reaffirmed a non-GAAP operating profit 'as early as the fourth quarter of the current year.'

Trajectory

Revenue has built steadily across the last five quarters on reported figures — from $16.5M in Q2 FY2025 to $17.4M, $20.1M, $22.9M, and $24.1M in Q2 FY2026, a 46% year-over-year increase in the latest quarter. Gross margin printed at 85.1% in Q2 FY2026 versus 89.4% in Q2 FY2025, reflecting lower-margin government and Cycuity work now sitting inside cost of revenue. EBITDA was -$12.4M (-51.4% of revenue) in Q2 FY2026 versus -$7.4M a year earlier, widened by acquisition-related and French payroll-tax costs. Free cash flow swung to +$8.6M in the quarter from -$2.8M in Q2 FY2025, bringing the trailing-twelve-month figure to +$6.7M.

The Model

The model projects FY+1 revenue of $98.2M with EBITDA of -$30M (-30.5% margin), and FY+2 revenue of $132.0M with EBITDA of -$19M (-14.2% margin). The near-term line reflects a revenue base still growing quickly while EBITDA stays negative. By FY+2, revenue is projected 34% higher than FY+1 while the EBITDA loss narrows, which is where the operating-leverage assumption sits.

Projections are the median of 5 independent model runs. The model’s revenue sits 14.0% above analyst consensus.

For FY2026, management guides revenue of $95M–$98M (37% YoY at the midpoint) and an ACV-plus-royalties exit of $102M–$106M. Non-GAAP operating loss is guided to $10M–$7M, widened from $8.5M–$4.5M, which management attributes to higher French employer payroll taxes on RSU vesting, lower-margin government/Cycuity mix, and higher sales and FAE commissions. Non-GAAP free cash flow is guided to +$5M to +$9M. For Q3 FY2026: revenue $24M–$25M, ACV plus royalties $99M–$103M, non-GAAP operating loss $3M–$1M. Management reaffirmed a non-GAAP operating profit 'as early as the fourth quarter of the current year.'

What Could Go Right — and Wrong

Looking Ahead

Over the next twelve months, the tests are the Q3 FY2026 print, the Q4 FY2026 non-GAAP operating-profit milestone, and whether the held ACV-plus-royalties exit guide is raised. Li Auto royalties are beginning to ramp on a typical automotive curve, and the unnamed hyperscaler and US design-house ASIC wins would feed future RPO as those programs tape out and ship.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

Arteris licenses semiconductor system IP. A chip is a set of blocks — processors, memory, accelerators, I/O — and Arteris sells the network-on-chip interconnect that moves data between them, plus software that automates chip assembly and a hardware-security-verification product line. The 10-K says its solutions had been incorporated into over four billion production SoCs since inception. Customers license the design, then pay royalties when the resulting chips ship in volume; management's headline forward metric is ACV plus royalties.

Arteris is fabless and asset-light. It does not own fabs, packaging, or data centers, and it leases its offices: a principal executive office in Campbell, California, leased US space in Campbell and Austin totaling about 15,500 square feet, and additional leased space in France, Poland, China, Japan, Taiwan and South Korea. Licensing, support and maintenance is the largest revenue line, royalties are the lagging per-unit stream, and professional services — including US government security work added with the January 2026 Cycuity acquisition — is small and lower-margin.

Business Segments

Competitive Landscape

Arteris competes in semiconductor IP, which its 10-K calls 'a relatively small and emerging industry.' Its growth depends on market acceptance of licensing third-party IP rather than customers designing everything in-house. The filings name Arm and Cadence as competitors — Arm as a third-party IP provider alongside smaller companies, Cadence in IP integration solutions. Arm is also now a paying adopter of the acquired Cycuity security product, which management says is currently non-royalty-bearing.

Supply Chain

Arteris sits upstream in the chip supply chain: it licenses design IP that chipmakers integrate, rather than making or packaging anything itself. No neighbor on the tape names Arteris, so this chain is drawn from filings, calls, and lower-confidence wiring.