Arm Posts Record $1.44 Billion Quarter, Then Shares Fall 13% Amid Tech Sell-Off

Arm Holdings had the biggest quarter in its history. Its stock fell 13% the next day anyway.

The chip designer reported fiscal second-quarter revenue of $1.44 billion for the period ended Sept. 30, up 27% from a year earlier. Analysts had expected about $1.38 billion. Adjusted earnings per share came in at $0.52 against $0.39 a year ago, beating the $0.48 estimate.

The company released the numbers Wednesday, Nov. 4, after the close. Shares slid in after-hours trading and fell 13% on Thursday. On Friday, Nov. 6, they rebounded 4.01% to $173.41 by 10:25 a.m. ET.

Where the money came from

Licensing and other revenue jumped 50% to $773 million, driven by an increase in long-term agreements. Royalty revenue grew just 8% to $670 million.

That gap is the part investors disliked. Licensing reflects deals signed now. Royalties reflect chips actually shipping, and upfront fees outran per-chip payments by more than $100 million.

Smartphones, still Arm's largest royalty source, were the drag. Smartphone royalty revenue was roughly flat for the year, as higher memory prices pressured handset shipments. Arm's guidance calls for only low-single-digit royalty growth in the third quarter, citing smartphone weakness and a tough comparison with last year.

The growth markets did their job. Data center royalties doubled year over year and now make up roughly a quarter of total royalty revenue. Royalties from physical AI, driven by autos, rose 50%. Arm expects its architecture to hold more than 60% of server share at the top hyperscalers by the end of 2026.

Accounting matters here too. GAAP operating income was $201 million, well below non-GAAP operating income of $638 million.

For the third quarter, Arm guided to revenue of $1.54 billion, modestly above estimates.

The bet on selling its own silicon

Arm built its business on licensing designs that other companies turn into chips. It is now moving into selling its own silicon, starting with the Arm AGI CPU.

The company says it has purchase orders lined up through 2027 and that first commercial deliveries are on track for the fourth quarter of fiscal 2027. It projects up to $2 billion in AGI CPU revenue across fiscal 2027 and 2028.

The long-range target is far bigger: $15 billion in annual AGI CPU revenue by 2031, within total company revenue of $25 billion that year. Oracle Cloud plans to offer AGI CPU instances in 2027.

Arm's stock soared in March when it announced the move into silicon.

Why the stock fell

Two things hit at once. Royalty growth and guidance fell short of what investors wanted. And the whole sector was selling off.

Motley Fool analyst Jeremy Bowman wrote that Thursday's drop was largely driven by a broad plunge in tech stocks on concerns about potential data center restrictions following the midterm elections. He noted that Arm had already fallen in after-hours trading before that broader move. No source in the reporting breaks down how much of the 13% came from Arm's own report and how much from the sector.

Bowman argues the market is getting it wrong. In his view, investors are underestimating the new chip business, though he acknowledges that valuing the stock is tricky at this stage. The royalty miss, in his telling, reflects a slow smartphone market rather than a problem with Arm's growth engines.

The skeptics' concern is narrower and tied to Arm's own model. TradingView's analysis framed the test as whether the AGI CPU turns into booked revenue without upsetting Arm's licensing customers. Those customers design their own chips on Arm's architecture, and Arm is now a seller of chips too.

What comes next

The $2 billion near-term figure and the $15 billion 2031 target are company projections, not results. The first hard evidence arrives with commercial deliveries in the fourth quarter of fiscal 2027, and with Arm's third-quarter report, where the company has guided to $1.54 billion in revenue and low-single-digit royalty growth.