Arm Holdings plc American Depositary Shares (ARM) | The Buildout — AI Infrastructure
The Verdict
Arm architects, develops, and licenses high-performance, energy-efficient compute platforms, and has expanded into Arm-designed silicon with the Arm AGI CPU. Its architecture and compute subsystems sit inside smartphones, cloud server CPUs, DPUs, SmartNICs, automotive systems, and edge devices, making it a core layer of the AI infrastructure buildout.
| Market Cap | — |
| Revenue (TTM) | $5.2B |
| Revenue Growth | +25.1% |
| EBITDA Margin (TTM) | 22.4% |
| Net Cash | $3.4B |
| Earnings Beats | 6 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Data center royalty revenue more than doubled y/y in both Q4 FY26 and Q1 FY27; management calls cloud AI the largest driver of royalty growth.
- Neoverse shipments surpassed 1.5 billion cores, with the most recent 500 million shipping in 9 months versus 6 years for the first billion.
- AGI CPU demand exceeds $2B across FY27–FY28 against initial supply-backed capacity of $1B, and management said confidence in exceeding that outlook increased in the past 90 days.
- FY26 revenue was $4.92B, up 23% y/y; Q1 FY27 revenue was $1.29B, up 22% y/y.
- IDC reported that spending on Arm-based accelerated server platforms nearly doubled in the past 2 quarters and has now surpassed x86 platforms.
What We’re Watching
- ACV growth decelerated to +13% y/y in Q1 FY27 from +22% y/y in Q4 FY26.
- Smartphone and memory-driven weakness spread from low-end to mid and upper tiers; Q2 FY27 royalty growth is guided to low teens.
- First-generation AGI CPU gross margin is expected in the high-30s/low-40s, moving toward 50% over a couple of years, below Arm's IP-level margins.
Thesis is intact but with a near-term trim: demand signals in data center and merchant silicon strengthened, while the consumer royalty outlook was lowered. The open question is whether Arm can convert the AGI CPU demand into revenue as supply expands before smartphone royalty weakness compounds.
Earnings Beat
Q1 FY27 revenue was $1.29B, up 22% y/y, with royalty revenue of $715M, up 22% y/y, and license and other revenue of $574M, up 23% y/y. Gross margin was 97.2%. Data center royalty revenue more than doubled y/y.
| Metric | Q1 FY2027 | Q4 FY2026 | Q1 FY2026 | YoY |
|---|---|---|---|---|
| Revenue | $1.3B | $1.5B | $1.1B | +22.4% |
| Gross margin | 97.2% | 93.1% | 94.3% | +290bps |
| EBITDA | $173M | $511M | $167M | +3.6% |
| EPS | $0.25 | $0.29 | $0.12 | +105.2% |
| Data center royalty growth | More than doubled y/y | More than doubled y/y | n/a | — |
| ACV growth | +13% y/y | +22% y/y | n/a | Decelerated from +22% y/y |
Demand now exceeds $2 billion as we continue to add new customers, including multiple customers in the U.S. and China, while the overall value of our pipeline has continued to strengthen.— Rene Haas, July 29, 2026
Management tone: Management tone was constructive and confident on AI and data center, and candid about smartphone and memory headwinds and supply constraints. They cut the full-year royalty guide directly, upgraded supply confidence for the initial AGI CPU capacity, and reaffirmed long-term targets.
Management Guidance
Q2 FY27 guidance is total revenue of $1.38B plus or minus $50M, license and other revenue up about 30% y/y, royalty revenue up in the low teens y/y, non-GAAP operating expense about $780M, and non-GAAP EPS of $0.47 plus or minus $0.04. Full-year FY27 royalty growth was revised to 'somewhere closer to the high teens' from about 20% because smartphone and memory weakness spread from the low end into mid and upper tiers. Management held the AGI CPU revenue outlook at $1B, with demand still above supply-backed capacity and first production revenue expected Q4 FY27.
Trajectory
Revenue grew 22% y/y to $1.29B in Q1 FY27, after reaching $1.49B in Q4 FY26. Gross margin held at 97.2%, but EBITDA margin fell to 13.4% from 34.3% in Q4 FY26. Data center royalties more than doubled again, while smartphone and memory weakness broadened, pushing the FY27 royalty growth outlook to high teens and Q2 royalty guidance to low teens.
The Model
The model's locked projections put FY+1 revenue at $6,040M with EBITDA of $1,546M, a 25.6% margin, and FY+2 revenue at $7,810M with EBITDA of $2,124M, a 27.2% margin. The FY+1 path is anchored by data center royalty momentum and the first AGI CPU production revenue expected in Q4 FY27; FY+2 embeds the ramp of merchant silicon toward a separate reported line in FY28.
| Metric | FY2026 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $4.9B | $5.9B | $7.7B |
| YoY Growth | — | +20.3% | +30.3% |
| EBITDA | $1.1B | $1.3B | $1.7B |
| EBITDA Margin | 23.4% | 22.6% | 22.6% |
Projections are the median of 5 independent model runs. The model’s revenue sits 4.3% below analyst consensus.
Q2 FY27 guidance is total revenue of $1.38B plus or minus $50M, license and other revenue up about 30% y/y, royalty revenue up in the low teens y/y, non-GAAP operating expense about $780M, and non-GAAP EPS of $0.47 plus or minus $0.04. Full-year FY27 royalty growth was revised to 'somewhere closer to the high teens' from about 20% because smartphone and memory weakness spread from the low end into mid and upper tiers. Management held the AGI CPU revenue outlook at $1B, with demand still above supply-backed capacity and first production revenue expected Q4 FY27.
What Could Go Right — and Wrong
- Arm secures supply well beyond the initial AGI CPU capacity, converting more of the AGI CPU demand into revenue.
- Data center royalty revenue keeps more than doubling as AWS Graviton5, Google Axion, Microsoft Azure Cobalt 200, and NVIDIA Vera deployments ramp.
- First AGI CPU production revenue lands on schedule in Q4 FY27 with visible customer deployments.
- The Q3 FY27 update shows AGI CPU revenue and margin visibility into FY28 with a gross-margin path toward 50%.
- Smartphone and edge royalties stabilize while Armv9 and compute-subsystem mix keep royalty per device growing double digits.
- Smartphone and memory-driven unit weakness worsens, pushing full-year FY27 royalty growth below the revised high-teens outlook.
- AGI CPU supply slips or component costs escalate, leaving capacity stuck at initial supply-backed levels against AGI CPU demand that still exceeds what can be served.
- Silicon gross margin remains in the high-30s/low-40s, diluting Arm's high IP-level margins.
- ACV growth decelerates further from +13% y/y, signaling softer new licensing demand.
- A major licensee shifts a future design away from Arm, or RISC-V gains a visible foothold in a hyperscaler or OEM program.
Looking Ahead
The next 12 months test the silicon transition. Q2 FY27 results will show whether the low-teens royalty guide holds. Q3 FY27 is the promised detailed AGI CPU revenue and margin update. Q4 FY27 is the first expected AGI CPU production revenue. In FY28, silicon revenue is expected to become a separate third line once it reaches 10% of total revenue. The DreamBig Semiconductor acquisition is expected to close by the end of Q2 FY27.
- Q2 FY27Quarterly results vs guide — Tests the $1.38B revenue guide and low-teens royalty growth.
- By end of Q2 FY27DreamBig Semiconductor acquisition close — Tests completion of the roughly $265M cash acquisition.
- Q3 FY27 resultsAGI CPU revenue and margin update — Management promised visibility into Q4 FY27 and FY28.
- Q4 FY27First AGI CPU production revenue — Tests conversion of silicon demand into recognized revenue.
- FY28Silicon revenue separate line — Expected once silicon reaches 10% of total revenue.
- Calendar 2028/29Supply-chain capacity expansion — Industry wafer and memory capacity seen expanding 70–100%.
Financials
Annual Summary
| Metric | FY2025 | FY2026 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $4.0B | $4.9B | $5.2B | +22.8% |
| Gross Margin | 94.6% | 94.8% | 95.3% | +15bps |
| EBITDA | $1.0B | $1.1B | $3.5B | +13.4% |
| EBITDA Margin | 25.3% | 23.4% | 22.4% | 193bps |
| Net Income | $792M | $904M | $1.0B | +14.1% |
| Free Cash Flow | $158M | $951M | $3.4B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)95.3%
- EBITDA Margin (TTM)22.4%
- Net Margin (TTM)20.2%
- ROIC13.5%
- FCF Conversion127.5%
- SBC / Revenue22.4%
The Company
Arm architects, develops, and licenses high-performance, energy-efficient compute platforms. The 20-F describes CPUs that address performance, power, and use-case requirements, plus GPU and NPU accelerators and system IP such as interconnects. As of March 2026, Arm added Arm-designed silicon with the Arm AGI CPU, its first merchant data-center product. The architecture sits across smartphones, cloud server CPUs, DPUs and SmartNICs, automotive electronics, and edge devices.
Arm is fabless and discloses no owned factory or data center; the only physical facility in the provided 20-F extract is its Cambridge, U.K. headquarters, approximately 418,793 square feet of leased office space. The 20-F reports a single operating segment and two revenue lines: license and other, and royalty. For the AGI CPU, Arm depends on external manufacturing capacity and lists wafers, substrates, test capacity, memory, and TSMC wafers as the binding inputs.
Business Segments
Competitive Landscape
The 20-F names x86 and RISC-V as Arm's primary competitive architectures. Arm's move into merchant silicon deepens co-opetition with major licensees; Qualcomm is both a 9%-of-FY26-revenue customer and an announced Arm-based data-center CPU entrant via Dragonfly C1000.
- x86Named in the 20-F as a primary competitive architecture.
- RISC-VNamed in the 20-F as a primary competitive architecture; the intel file flags it as a structural risk if it gains a foothold.
- QualcommMajor customer at 9% of FY26 revenue; announced the Arm-based Dragonfly C1000 data-center CPU, deepening co-opetition.
Supply Chain
Arm is a fabless compute-platform licensor moving into merchant silicon. It sits between external manufacturers and downstream chip customers, relying on third parties for wafers, substrates, test capacity, and memory; no named foundry contract is disclosed.
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