Arm Doubles AGI CPU Revenue Target to $2 Billion

Arm Holdings doubled its revenue outlook for its first in-house chip to up to $2 billion on Thursday, while reporting record second-quarter revenue of $1.44 billion, up 27% year-over-year. The company now claims two businesses instead of one, and every claim deserves scrutiny.

What did the quarter deliver?

Total revenue of $1.44 billion marks the fifth consecutive quarter of growth above 20%. License and other revenue jumped 50% to $773 million, roughly $100 million above management's own expectations. Royalty revenue rose only 8% to $670 million, a record for a second quarter but the slower of the two engines. Non-GAAP operating income climbed 37% to $638 million at a 44.2% margin, while non-GAAP EPS reached $0.52, up 33%.

CEO Rene Haas framed the shift: "What we are now starting to see is what was one great business is now turning into two great businesses. The IP business continues to do very, very well... but now with our new Arm AGI CPU ramping into production, increased confidence to achieve the $2 billion number."

Note what the $2 billion figure is not. It is a purchase-order-backed ceiling ("up to $2 billion"), not booked revenue, and first commercial deliveries will not arrive before fiscal Q4 2027.

Why did licensing surge 50%?

CFO Jason Child attributed the outperformance to new commitments, not renewals. Arm signed three new Arm Total Access Agreements (ATA, a subscription giving customers access to Arm's full technology portfolio), bringing active subscriptions above 60, including one first-time major customer. Four compute subsystem (CSS, pre-integrated platform designs) licenses were signed: two for data center chips, two for smartphones.

"The pipeline has been surprisingly strong, stronger than we expected when we started the year," Child said. "These were incremental and new deals that are kind of hard to forecast. We are in that same situation again."

The SoftBank agreement contributed $209 million, up 17%, and should hold near that quarterly run rate. Annualized contract value grew 12%. Child cautioned the $773 million is a step-up, not a baseline. License beats convert into royalties only "12-18 months, 24 months down the road," he said. The promise is real but deferred.

Is data center carrying the royalty business?

Largely, yes. Data center royalties doubled year-over-year as Arm-based CPUs ramped across Google Axion, AWS Graviton, Microsoft Cobalt and NVIDIA platforms. Arm-based server share at top hyperscalers more than tripled from 15% in calendar 2024 to over 50% in calendar 2025; management expects over 60% by end of calendar 2026.

"We had talked for many, many years about Arm getting to 20% in data centers," Haas said. "The fact that we are 50% in the last year and will be 60% by the end of this year is also something we are very, very proud of."

Data center royalties, approaching 20% of the total last year, should reach roughly one-third "sometime soon," though Child admitted probably not this fiscal year. He projected triple-digit growth in the segment over the next few years.

Where is the strain?

Edge AI royalties were roughly flat. Higher memory prices pressured smartphone units, especially mid- and lower-tier devices. Higher royalty rates from Armv9 and CSS adoption offset the headwind. Physical AI royalties rose 50% on automotive and robotics. Arm-based PCs hit 20% of global shipments. Partners shipped more than 10 billion Arm-based chips in a single quarter for the first time, up 1.5 billion year-on-year.

Can Arm deliver its own silicon?

The AGI CPU target moved from $1 billion to up to $2 billion in 90 days, lifted by purchase orders through calendar 2027 and new supply agreements. Meta is the chief customer, but Haas promised "multiple customers beyond Meta." Supermicro, Lenovo and ASRock are building racks; Oracle Cloud Infrastructure plans AGI CPU instances in 2027.

Vivek Arya of Bank of America Securities pressed on supply, citing AMD's long-standing TSMC relationships. Haas pointed to decades-old ties with TSMC, Micron, Samsung and SK hynix, calling the effort "a 5 to 10-year endeavor." First-version gross margins will run high-30s to low-40s percent, below the IP business, with 50%+ targeted later. Signal65 testing, commissioned independently per Haas, showed roughly twice the per-rack performance of AMD's EPYC 9755.

Q3 guidance: revenue of $1.54 billion ±$50 million, up 24%; non-GAAP EPS of $0.56 ±$0.04; royalty revenue up low teens sequentially but low single digits year-over-year. Arm generated $1.1 billion in trailing free cash flow. Updated long-term targets, originally $2 billion and $5 billion, will likely come at the spring Arm Everywhere event.