Earnings Recap — Q1 FY2027
CY Q3 2026 · Reported July 29, 2026 · Beat 6 of last 7 quarters
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Arm's record quarter and accelerating data center royalty growth underscore the CPU's central role in AI infrastructure, as hyperscalers and AI companies standardize on Arm-based CPUs for head nodes and agentic workloads. The Arm AGI CPU's expanding demand and supply commitments signal a new silicon revenue stream that could further entrench Arm in the AI buildout, with potential upside if the CPU TAM grows to $220B.
Arm delivered a record Q1 with revenue of $1.29B, up 22% YoY, driven by strong licensing and royalty growth. Data center royalties more than doubled YoY, and Neoverse shipments surpassed 1.5 billion cores, with the last 500 million shipping in just 9 months. The Arm AGI CPU saw increased customer demand, exceeding $2 billion, and management secured manufacturing capacity for the initial $1 billion opportunity. Non-GAAP operating margin expanded 200 bps to 41%, and free cash flow was $665M for the quarter.
Management raised confidence in the Arm AGI CPU opportunity, now seeing demand above $2 billion and increased confidence in exceeding the $1 billion revenue target for FY27-28. They secured manufacturing capacity for the initial $1 billion and are working to expand supply. Q2 guidance calls for revenue of $1.38B ± $50M (up ~22% YoY), with licensing up ~30% and royalties up low-teens. They expect non-GAAP OpEx of ~$780M and EPS of $0.47 ± $0.04. Royalty growth for the year is now expected to be high-teens (down from ~20%) due to smartphone weakness, but cloud AI overperformance is offsetting.
“Our confidence in achieving upside to our $1 billion opportunity for the Arm AGI CPU business has increased in the past 90 days.”
on AGI CPU demand
“Arm Neoverse shipments have now surpassed 1.5 billion cores with the most recent 500 million shipping in just the last 9 months, where the first 1 billion took 6 years.”
on Neoverse momentum
“So while there is weakness on the smartphone side, the overperformance on the cloud AI business continues to accelerate, and that's the piece that gives us confidence in full year and next year's numbers.”
on Cloud AI offsetting smartphone weakness
Can you give us more detail on the increased confidence in the upside to the $1 billion for AGI revenue? Is it better wafer supply, customers getting access to memory?
Rene Haas: It's all of the above. Demand picture has gotten better, north of $2 billion. Our ability to secure supply for the north of $1 billion has increased across wafers, substrates, test capacity, and memory. Jason Child: No change to gross margin expectations—high 30% to low 40% for first generation, moving to 50% over a couple of years as we bring more work in-house.
Given higher memory costs impacting smartphone BOM, how does this affect your royalty revenue outlook?
Rene Haas: We are somewhat isolated from negative smartphone market growth due to V9 and CSS penetration, driving double-digit royalty growth in smartphones. Jason Child: We have seen incremental slowdown across all parts of the market, so royalty growth for the year is now likely high-teens rather than ~20%. Cloud AI overperformance is offsetting, and we expect recovery in the back half.
What is preventing Arm from securing supply for just one more billion? And doesn't the proprietary accelerator co-design by NVIDIA/Amazon/Google restrict Arm's opportunity?
Rene Haas: The supply chain is extremely tight across memory, test equipment, substrates, and TSMC wafers. We are more optimistic than 90 days ago. On accelerators, Google uses Axion as host CPU for TPUs, and NVIDIA's NVLink Fusion allows mixing Arm CPUs with accelerators. There are paths for Arm to connect to custom accelerators.