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    ARM
    Earnings call· Dec 2025(Q3 FY26)

    ARM HOLDINGS PLC /UK Q3 FY26 earnings call ARM

    Feb 4, 2026 Source

    Executive summary

    Arm Holdings plc Q3 FY26 — Record Revenue and Royalties Driven by AI and Data Center Growth

    Arm delivered a record quarter, fueled by robust demand for its compute platform across AI workloads in cloud, edge, and physical AI. Strategic investments in next-generation architectures and Compute Subsystems are driving higher royalty rates and market share gains, particularly in the data center. The company remains confident in its long-term growth trajectory despite potential near-term headwinds from memory supply chain constraints.

    Highlights

    5

    • Total revenue grew 26% year-on-year to a record $1.24 billion.

    • Royalty revenue increased 27% year-on-year to a record $737 million.

    • License revenue was up 25% year-on-year to $505 million.

    • Non-GAAP EPS reached $0.43, near the high end of guidance.

    • Annualized Contract Value (ACV) grew 28% year-on-year, maintaining strong momentum.

    Concerns

    2

    • Memory supply chain constraints could lead to a 1-2% negative impact on total royalties for next year, primarily affecting smartphone unit volumes.

    • Q4 FY26 royalty revenue growth is guided to be in the low teens year-on-year, primarily due to difficult prior-year comparisons and seasonality.

    Guidance & targets

    9
    CategoryTargetConfidence
    Q4 FY26 Revenue
    $1.47 billion, plus or minus $50 million
    high materiality
    High
    Q4 FY26 Royalty Revenue Growth
    up low teens year-on-year
    medium materiality
    High
    Q4 FY26 Licensing Revenue Growth
    up high teens year-on-year
    medium materiality
    High
    Q4 FY26 Non-GAAP Operating Expense
    approximately $745 million
    medium materiality
    High
    Q4 FY26 Non-GAAP EPS
    $0.58, plus or minus $0.04
    high materiality
    High
    FY27 Growth Rate
    20% growth rate
    high materiality
    Medium
    Data Center Business Size
    largest business, larger than mobile
    high materiality
    High
    Data Center Royalty Revenue Share
    similar or maybe even larger than smartphone business (40% to 45% of total)
    high materiality
    Medium
    Compute Subsystems (CSS) Royalty Mix
    upwards of 50% of royalties
    high materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Edge AI (Smartphones, IoT)
    Royalty revenue from Edge AI devices, particularly smartphones, continues to grow significantly faster than the overall market, driven by adoption of Armv9 and CSS.
    Major Android OEMs ramping smartphones with chips based on Armv9 and CSS
    		—much faster than the market——
    Cloud AI (Data Center, Networking)
    Data center royalty revenue continues to double year-on-year, driven by the ramp of Arm-based chips by all major hyperscaler companies and increased deployment of networking chips like DPUs and SmartNICs.
    Royalty revenue doubling year-on-yearOngoing share gains from custom hyperscaler chipsVery high market share in DPUs and SmartNICs
    		—triple digits——
    Physical AI (Automotive, Robotics)
    The automotive market within Physical AI grew double digits year-on-year, contributing to strong royalty performance.
    		—double digits——

    Operational metrics

    12
    Royalty revenue
    $737 million27% year-on-year
    Q3 FY26

    Record royalty revenue driven by record units with strength across AI and general-purpose data center.

    License and other revenue
    $505 million25% year-on-year
    Q3 FY26

    Growth driven by strong demand for next-generation architectures and deeper strategic engagements.

    Non-GAAP EPS
    $0.43
    Q3 FY26

    Close to the high end of guidance range, driven by higher revenue and slightly lower OpEx than expected.

    Non-GAAP operating expenses
    $716 million37% year-on-year
    Q3 FY26

    Due to strong R&D investment in engineering headcount, next-generation architectures, compute subsystems, chiplets, and SoCs.

    Non-GAAP operating income
    $505 million14% year-on-year
    Q3 FY26

    Resulted in a non-GAAP operating margin of about 41%.

    Non-GAAP operating margin
    41%
    Q3 FY26

    Calculated from non-GAAP operating income of $505 million.

    Annualized Contract Value (ACV) growth
    28%year-on-year
    Q3 FY26

    Maintaining strong momentum following 28% year-on-year growth in Q1 and Q2, above long-term expectation of mid- to high single-digit growth for license revenue.

    Compute Subsystems (CSS) licenses
    21+2 this quarter
    Q3 FY26

    Includes 2 additional CSS licenses for Edge AI tablets and smartphones signed this quarter.

    Compute Subsystems (CSS) customers shipping
    5
    Q3 FY26

    These customers are shipping CSS-based chips, with 2 shipping a second-generation platform.

    Neoverse CPUs deployed
    over 1 billion
    Q3 FY26

    Reflects the growing adoption of Arm in data centers.

    Developer ecosystem
    over 22 million
    Q3 FY26

    A broad developer ecosystem supports the Arm platform.

    SoftBank license contribution
    $200 million
    Q3 FY26

    Contribution from technology licensing and design services agreement with SoftBank, representing a full quarter impact.

    Industry KPIs

    7
    MetricValueDetails
    Ai data center revenueover 100%%
    Market share commentary50%%
    Design wins socket pipeline21licenses
    Inventory channel inventory—
    Node platform ramp schedule—
    End market segment revenue mix—
    Strategic supply agreements customer prepayments2agreements

    Product announcements

    6
    ProductTypeDetails
    AWS Graviton processormilestone
    NVIDIA Vera CPUmilestone
    Microsoft Cobalt 200milestone
    Google Axion-powered N4A instancesmilestone
    Rivian Autonomy Computer (3rd generation)milestone
    Tesla Optimus humanoid robotmilestone

    Deals & partnerships

    3
    SoftBankTechnology licensing and design services agreement$200 million

    SoftBank has become an increasingly important customer as they build out their AI compute strategy, including recent acquisitions such as Ampere and Graphcore. The revenues are considered durable.

    MultipleArm Total Access (ATA) agreements

    Two new Arm ATA agreements were signed during the quarter.

    Leading smartphone handset OEMsCompute Subsystems (CSS) licenses

    Two new CSS licenses were signed with leading smartphone handset OEMs, bringing the total to 21 CSS licenses across 12 companies.

    Risks & headwinds

    2
    Memory supply chain constraints impacting smartphone unit volumesNext year (FY27)

    Potential 15-20% reduction in unit volume for next year; 2-4% impact on smartphone royalties; 1-2% negative impact on total royalties.

    Mitigation: Cloud AI/infrastructure business growth is more than compensating for these risks; focus on high-end market (premium/flagship) where CSS and v9 royalties are highest.

    Royalty revenue growth deceleration due to difficult comparisons and seasonalityQ4 FY26

    Q4 FY26 royalty revenue expected to be up low teens year-on-year.

    Mitigation: The deceleration is primarily due to comping an unusual MediaTek chip release in the prior year's Q4 and typical seasonality, rather than fundamental weakness. Full-year royalties are still expected to be north of 20%.

    Q&A highlights

    10

    How does Arm view its role and the role of the CPU in AI and cloud data centers, especially with the proliferation of AI agents?

    Rene Haas explained that the shift from training to inference, particularly agent-based AI, is well-suited for CPUs due to their power efficiency, always-on capability, and fast latency. This trend drives increased deployment of CPUs, especially Arm-based ones, which offer high core counts and efficiency within data center power constraints, leading to a positive tailwind for Arm.

    “These workloads are persistent, always-on and power constrained. This is a fundamental change in how AI systems operate. This is because agent-based AI requires coordination across many agents running continuously, and that the CPU can only do coordination.”

    asked by Joseph Quatrochi · answered by Rene Haas

    2 min read6 chapters

    Detailed Narrative

    01

    AI Transformation and Arm's Foundational Role

    Arm is positioning itself as the foundational compute platform for the AI era, spanning cloud infrastructure, edge devices, and physical systems. The company emphasizes its ability to deliver high performance, energy efficiency, and flexibility across a broad range of power envelopes, from milliwatts to gigawatts. This strategy aligns with the industry's need for platforms that can support diverse AI workloads and use cases, leveraging Arm's strengths in power efficiency and predictable latency.

    02

    Compute Subsystems (CSS) Driving Royalty Momentum

    Compute Subsystems (CSS) are a key driver of Arm's royalty growth, with demand exceeding expectations since its launch 2.5 years ago. The company added two new CSS licenses for Edge AI tablets and smartphones this quarter, bringing the total to 21 licenses across 12 companies. Five customers are now shipping CSS-based chips, including two on second-generation platforms, and all top four Android smartphone vendors are shipping CSS-powered devices. CSS helps customers accelerate time-to-market and increases Arm's value per chip.

    03

    Cloud AI and Data Center Expansion

    The shift towards agent-based AI inference is reshaping data center design, directly benefiting Arm due to its industry-leading performance per watt. Arm-based CPUs enable higher core counts and better power efficiency for always-on AI workloads. Neoverse CPUs have surpassed 1 billion cores deployed, and Arm's share among top hyperscalers is expected to reach 50%. Major hyperscalers like AWS (Graviton), NVIDIA (Vera), Microsoft (Cobalt), and Google (Axion) are launching new Arm-based processors with increased core counts and improved performance per watt.

    04

    Edge and Physical AI Growth Opportunities

    Beyond the data center, AI is expanding into everyday devices, opening new growth avenues in edge and physical AI markets. Arm's power efficiency, predictable latency, and common software foundation are crucial for these systems, which operate under strict power, safety, and reliability constraints. Examples include Rivian's third-generation Autonomy Computer (first production vehicle with custom Armv9 chip) and Tesla's Optimus humanoid robot, both powered by custom Arm-based AI processors.

    05

    Strong Financial Performance and Strategic Investments

    Arm delivered a record third quarter with strong revenue and royalty growth, reflecting increasing royalty per chip and rising market share. License revenue also saw significant growth, driven by demand for next-generation architectures and strategic engagements. The company continues to make substantial R&D investments in engineering headcount, next-generation architectures, compute subsystems, chiplets, and complete SoCs, positioning itself for sustained long-term growth in the evolving AI landscape.

    06

    SoftBank's Role as a Key Customer

    SoftBank has become an increasingly important customer for Arm, particularly as it builds out its AI compute strategy through acquisitions like Ampere and Graphcore. The technology licensing and design services agreement with SoftBank contributed $200 million to Arm's license revenue this quarter. This revenue is considered durable, relating to current generations of technology that will continue as SoftBank executes its roadmap.

    AI-generated summary of the company’s earnings call. Not investment advice.