Arm shares higher after strong quarter driven by licensing momentum
Investing.com -- Shares of Arm Holdings ADR (NASDAQ: ARM) jumped 2.4% in premarket trading Thursday after the chip architecture firm topped quarterly earnings expectations and offered upbeat guidance, buoyed by robust licensing activity and royalty gains.
The results highlight ongoing traction in high-value chip designs and customer investments in next-generation AI and computing applications.
The company posted diluted earnings per share of $0.39 for the second fiscal quarter, exceeding Wall Street estimates by $0.08. Revenue also came in above consensus at $1.14 billion, up 34% from the prior-year period and ahead of the expected $1.06 billion.
Royalty revenue totaled $620 million, a 21% increase fueled by improving chip mix and continued adoption of Armv9 architecture with higher per-chip rates. Licensing revenue soared 56% year-on-year to $515 million, reflecting the signing of multiple high-value contracts and the conversion of backlog from prior quarters.
" Arm ’s FY2Q26 print was a beat top and bottom line - both licensing and royalties strong," Morgan Stanley analyst Lee Simpson commented.
The company forecast fiscal third-quarter revenue between $1.18 billion and $1.28 billion, well ahead of the $1.15 billion analysts projected. Arm also guided to EPS of $0.41, suggesting further operating leverage as licensing volume scales.
The company once again projected higher third-quarter operating expenses than analysts expected—$720 million versus the $675 million consensus.
"High opex confirmed, which suggests the company is building for long term demand, much as expected," analysts added.
Arm’s data-center and AI-related opportunities remain a strategic growth vector, while smartphone and automotive markets showed resilience. The firm highlighted expanding adoption of its Neoverse platform among hyperscalers such as Amazon, Google, and Microsoft, and the rollout of its Lumex CSS design delivering up to 5× faster AI CPU performance and 3× greater energy efficiency.
The company recently completed the sale of its Artisan Foundation IP business to Cadence Design Systems for $131 million, a move intended to sharpen its focus on CPU and system IP platforms.
Investors are closely watching Arm’s ability to capitalize on demand from hyperscalers and chipmakers designing custom silicon. With consistently high margins and recurring royalty streams, Arm’s model continues to reflect strong visibility and profitability.