Arm Holdings beats third-quarter expectations on AI surge

• CEO Rene Haas attributes bullish outlook to rising demand for Arm’s Compute Subsystems products, which offer more complete chip designs and higher royalty rates.
• Company is assembling new engineering teams to bring these “physical embodiments” of its CSS designs to market.

UK-based chip technology provider Arm Holdings issued a fiscal third-quarter forecast that exceeded Wall Street expectations, propelled by booming demand for artificial intelligence (AI) computing. Following the report, Arm shares jumped 5 per cent in after-hours trading before retreating slightly to finish up about 3 per cent.

Arm projected revenue of $1.23 billion at the midpoint of its current−quarter guidance, outpacing the average analyst estimate of $1.1 billion.

CEO Rene Haas attributed the bullish outlook to rising demand for Arm’s Compute Subsystems (CSS) products, which offer more complete chip designs and higher royalty rates. The growing adoption of CSS by customers and an industry-wide spike in AI investments were instrumental in the positive forecast.

“When we think about what’s going on with Arm in the data centre, we then kind of go back to all of this demand for AI compute—the bottleneck is power. That’s a good thing for us,” Haas said.

For the just-ended second fiscal quarter, Arm reported a 34 per cent revenue increase to $1.14 billion. Adjusted earnings hit 39 cents per share, above the expected 33 cents. Royalty revenue jumped 21 per cent to $620 million, while licensing revenue rose 56 per cent to $515 million, fueled by the timing of major contracts.

Arm’s energy-efficient designs—favoured in smartphones, data centres, and automotive markets—are gaining traction as the industry faces mounting power constraints in AI processing. Google uses Arm’s architecture in its Axion processors, delivering 60 per cent better energy efficiency than comparable Intel and AMD chips, Haas noted.

Expanding beyond IP licensing 

Historically, Arm has generated income through licensing its semiconductor designs and collecting royalties for every chip produced using its architecture. Its technology underpins nearly every smartphone worldwide and is increasingly present in data centres, with Arm expecting its CPUs to power nearly half of top “hyperscaler” deployments by 2025.

Last quarter, Arm revealed strategic plans to reinvest profits in developing its own chips—a notable shift from its traditional intellectual property business model. The company is assembling new engineering teams to bring these “physical embodiments” of its CSS designs to market.

Haas indicated progress in this new direction: “Arm had ‘inched a little bit further—relative to continuing to explore’ making its own chips.”