ARM Holdings plc (ARM) — Earnings Preview Memo
Key Factors to Watch Next Quarter
| Factor | Details & What to Watch |
|---|---|
| Revenue Growth | Consensus Q1 FY27 revenue: $1,264M (+20% YoY). Watch for upside vs. guidance and consensus. |
| Royalty Revenue | Guidance: ~+20% YoY for Q1 FY27. Data center (Cloud AI) royalties expected to double YoY. |
| Licensing Revenue | Guidance: ~+20% YoY for Q1 FY27. Full-year license growth expected in the 20% range. |
| AGI CPU Ramp | Management expects ~$90M revenue in Q4 FY27 from AGI CPU; >$2B demand across FY27–28. Supply constraints are a watch item. |
| Operating Expenses | Q1 FY27 OpEx guided to $760M; sequential quarterly increases expected, but at a slower pace than revenue. |
| EPS | Q1 FY27 non-GAAP EPS guided to $0.40 ± $0.04. |
| Data Center Share & TAM | Data center royalty revenue is more than doubling YoY; management targets $100B+ TAM by 2030. |
| Margin Profile | Chip business expected to be operating profit positive in FY27; long-term chip margin target ~35%. |
Summary and Conclusions
- ARM enters FY27 with strong momentum: Record Q4 and FY26 results, robust demand for both IP/CSS and new AGI CPU silicon.
- Guidance for Q1 FY27: Revenue of $1,260M–$1,310M (+20% YoY at midpoint), royalty and license revenue both up ~20% YoY, OpEx $760M, non-GAAP EPS $0.40 ± $0.04.
- AGI CPU launch is a major catalyst: Over $2B in customer demand for FY27–28, but supply chain capacity is a gating factor for upside.
- Data center/Cloud AI is the key growth engine: Royalties from this segment are doubling YoY and are expected to surpass mobile as the largest business in coming years.
- Tough comparable: Q4 FY26 was a record quarter (+20% YoY revenue), so Q1 FY27 faces a high base, but management expects continued ~20% growth.
- Licensing remains strong: License revenue up 29% YoY in Q4 FY26; full-year license growth +25%. Management expects high teens to 20% growth in FY27.
- Operating leverage improving: OpEx growth to moderate through FY27, with incremental margin improvement expected by year-end.
Quarterly Financial Snapshot — Actuals and Consensus
Quarterly Results and Consensus (USD Millions)
| Quarter | Revenue (Actual) | Revenue (Consensus) | YoY Growth | EBITDA (Consensus) | Net Income (Consensus) | EPS GAAP (Consensus) |
|---|---|---|---|---|---|---|
| Q4 FY26 | $1,490 | $1,470 | +20% | $766 | $626 | $0.37 |
| Q3 FY26 | $1,240 | $1,227 | +26% | $549 | $437 | $0.20 |
| Q2 FY26 | $1,061 | $1,061 | +34% | $445 | $354 | $0.13 |
| Q1 FY26 | $1,061 | $1,061 | +25% | $465 | $375 | $0.18 |
| Q4 FY25 | $1,227 | $1,227 | $667 | $558 | $0.34 |
Note: Actuals are from company-reported figures; consensus is from compiled analyst estimates.
Annual Financial Snapshot — Actuals and Consensus
| Fiscal Year | Revenue (Actual) | Revenue (Consensus) | YoY Growth | EBITDA (Consensus) | Net Income (Consensus) | EPS GAAP (Consensus) |
|---|---|---|---|---|---|---|
| FY26 | $4,920 | $4,898 | +23% | $2,319 | $1,877 | $0.92 |
| FY25 | $4,001 | $4,001 | $2,003 | $1,709 | $0.88 |
Guidance Summary
Q1 FY27 Guidance
| Metric | Guidance Range | YoY Growth (at Midpoint) | Notes |
|---|---|---|---|
| Revenue | $1,260M ± $50M | +20% | Both royalty and license revenue up ~20% YoY |
| Royalty Revenue | ~+20% YoY | +20% | Data center royalties expected to double YoY |
| License Revenue | ~+20% YoY | +20% | Licensing pipeline remains strong |
| Non-GAAP OpEx | ~$760M | Sequential quarterly increases, but slower than revenue | |
| Non-GAAP EPS | $0.40 ± $0.04 |
Full-Year FY27 Guidance/Outlook (Soft Guidance)
- Management expects royalty and license revenue growth to be in the "roughly 20-ish percent" range for the year.
- License revenue will be back-end weighted (60% H2, 40% H1).
- OpEx will grow sequentially each quarter by a few percent, but revenue will outpace OpEx growth by year-end, driving incremental margin improvement.
- AGI CPU revenue: Management maintains $1B revenue target for FY27–28, with ~$90M expected in Q4 FY27 and the remainder in FY28. Demand is >$2B, but supply constraints are a gating factor.
- Long-term, management targets $15B AGI CPU revenue and $10B IP revenue by FYE31, translating to >$9 EPS.
How Did They Report Last Year? Are They Coming Off a Tough Comparable?
- Q4 FY26 was a record quarter: Revenue $1,490M (+20% YoY), licensing revenue +29% YoY, royalty revenue +11% YoY.
- FY26 was a record year: Revenue $4,920M (+23% YoY), royalty revenue $2,610M (+21%), licensing revenue $2,310M (+25%).
- Tough comparable: Q4 FY26 had a very strong ramp in data center and licensing, setting a high bar for Q1 FY27. Management expects continued ~20% growth, but the base effect is notable.
Management Commentary and Intra-Quarter Color
- AGI CPU Demand: "We now have more than $2 billion of customer demand across fiscal 2027 and fiscal 2028. This is more than double what we stated at launch. We are on track towards our forecast of $15 billion as this business as stated at our Arm Everywhere event."
- Royalty Growth: "Data center royalty revenue continues to more than double year-on-year, and we see no break in this momentum."
- Licensing Outlook: "For this year, I think we said you should expect license revenue to be more in the 20s percent range. Over time, I would expect...the long-term target is probably in the high single-digit, low double-digit range."
- OpEx and Margins: "OpEx growth is going to grow sequentially every quarter by, call it, a few percent. And the overall expense will still kind of be -- will show incremental margin improvement throughout the year, and we will be growing expenses less than revenue by the time we end the year."
- Data Center Share: "Cloud AI or data center royalty revenue continues to more than double year-on-year...we expect in a few years, our data center business to be our largest business, larger than mobile."
- Supply Constraints: "For the $2 billion [AGI CPU demand], we are now in the process of securing supply to support that. And the teams are working around the clock to make sure we can find the right answers for our customers."
