Arm delivered a record-breaking second quarter for fiscal year 2027, reporting total revenue of US$1.44 billion, up 27% year-over-year. This milestone marks the company's fifth straight quarter of growth exceeding 20%, driven by massive acceleration in its licensing business and strong demand for its artificial intelligence (AI) infrastructure.
Chief Executive Rene Haas highlighted that Arm is increasingly becoming the compute platform of choice as artificial intelligence transforms major markets.
Licensing tops forecasts
The standout financial driver for the quarter was Arm's license and other revenue, which surged 50% year-over-year to reach US$773 million.
According to management at the company's earnings call, this spike was roughly US$100 million higher than anticipated, driven by the timing of high-value Total Access and compute subsystem agreements, contributions from the company's backlog, and partners increasing their long-term investments in the Arm Compute Platform.
During the quarter, Arm signed three new Arm Total Access (ATA) agreements—bringing active ATA subscriptions to over 60—and four additional compute subsystem (CSS) licenses for data centers and smartphones. Executives emphasized that this high level of licensing activity serves as a vital leading indicator for future royalties, as these new design starts eventually transition into commercial production.
Royalty growth varies by market
Overall royalty revenue grew 8% year-over-year to US$670 million, with performance varying across Arm's core pillars.
In Cloud and Data Center AI, data center royalties doubled year-over-year, fueled by rapid cloud AI adoption and market share gains among major hyperscalers. Arm-based server market share at top hyperscalers jumped from 15% in calendar 2024 to over 50% in calendar 2025 and is expected to exceed 60% by the end of calendar 2026.
Physical AI royalty revenue grew 50% year-over-year, supported by increasing adoption in automotive applications—such as advanced driver assistance and in-vehicle infotainment—as well as in robotics.
Meanwhile, Edge AI royalty revenue remained roughly flat year-over-year as persistently high memory prices continued to pressure smartphone unit volumes in the mid- and lower tiers. The contraction in handset shipments constrained mobile volumes, a challenge echoed across the industry by companies like Qualcomm. However, this headwind was offset by higher adoption rates of newer ARMv9 and CSS technologies, with management anticipating a reacceleration as market conditions normalize.
AGI CPU demand exceeds expectations
Arm is successfully expanding from a single IP business into two robust growth engines with the introduction of its direct silicon business centered on the Arm AGI CPU.
Customer demand for the Arm AGI CPU has significantly exceeded initial expectations since its launch. Backed by secured purchase orders from multiple customers—with Meta serving as the primary customer—and strengthened supply chain agreements, Arm has increased its confidence in achieving up to US$2 billion in revenue for the product across fiscal years 2027 and 2028. First commercial deliveries remain on track for the fourth quarter of fiscal year 2027.
Looking ahead, management believes that complex agentic AI workloads will heavily favor CPU-bound performance. By delivering superior performance-per-watt capabilities—independent testing showed the AGI CPU delivering roughly twice the performance per rack of competing solutions—Arm is uniquely positioned to help customers navigate projected global data center power shortfalls and capture a larger share of a projected US$200 billion-plus market by 2030.
Article edited by Jerry Chen
