Arm Reports Record Revenue as AI, Cloud Demand Accelerate Growth

Chip Designer Sees Strong Adoption of Armv9 and Compute Subsystems Amid AI Boom

Cambridge, U.K. — Arm Holdings plc (NASDAQ: ARM) reported record-breaking revenue in its fiscal third quarter, as the company continues to benefit from surging demand for AI-capable semiconductors and custom silicon solutions. The British chip designer, whose technology underpins everything from smartphones to data centers, saw its revenue climb 19% year-over-year to $983 million, fueled by the growing adoption of its Armv9 architecture and Compute Subsystems (CSS).

Arm’s royalty revenue surged 23% to $580 million, reflecting increased chip shipments in cloud computing, automotive, and Internet of Things (IoT) markets. License and other revenue reached $403 million, up 14% year-over-year, aided by high-value licensing agreements and a strong backlog of orders.

“With our high-performance, energy-efficient, and flexible technology, Arm is enabling AI innovation across industries, from the edge to the cloud,” said CEO Rene Haas. “Our technology is at the heart of today’s most advanced computing systems, powering everything from AI inference in data centers to next-generation autonomous vehicles.”

AI and Custom Silicon Drive Growth

A major driver behind Arm’s recent success is the company’s increasing presence in artificial intelligence workloads. Over the past year, cloud giants such as Microsoft and Google have unveiled custom Arm-based processors to handle AI and cloud computing tasks.

Microsoft’s Cobalt 100 chips, designed for Azure cloud infrastructure, and Google’s Axion processors, tailored for Google Cloud Platform (GCP), both launched this quarter, marking an important milestone in the adoption of Arm’s technology for cloud computing. NVIDIA’s Project DIGITS, announced in the third quarter, aims to develop AI-optimized personal computers running on Arm-based processors. SoftBank’s $500 billion AI infrastructure investment also highlights the growing reliance on Arm technology in next-generation computing.

Arm’s Compute Subsystems (CSS) are gaining traction as companies shift toward custom silicon for AI, high-performance computing, and cloud data centers. The company reported that CSS adoption is ahead of plan, with 12 major licensees already signed up, including leading semiconductor firms, OEMs, and cloud service providers.

Diversification Beyond Smartphones

Arm has long been synonymous with mobile processors, but its latest financial results highlight its growing footprint in non-mobile markets. While smartphone-related revenue still makes up a significant share of royalties, the company has seen rapid growth in cloud, automotive, and IoT applications.

Mobile processors accounted for 40% of royalties, down from previous highs, as the company expands into other sectors. Cloud computing and networking chips now contribute 10% of royalties, a testament to Arm’s increasing role in hyperscale data centers. Automotive applications, including autonomous driving and AI-driven in-vehicle computing, make up 8% of royalties. IoT and embedded systems, spanning everything from smart home devices to industrial automation, represent 20% of royalties.

“We continue to see strong momentum in AI, cloud computing, and custom silicon adoption, which are all driving demand for Arm’s latest architectures,” Haas said.

Financial Performance: Margins Hold Strong Amid Rising Costs

Despite a 21% year-over-year decline in free cash flow, Arm remains highly profitable, with robust gross margins of 98% and an operating margin of 45%. The decline in free cash flow was attributed to higher investments in engineering and R&D, as the company scales its workforce and infrastructure to support future growth.

Arm’s engineering headcount rose by 19% year-over-year, reflecting increased demand for advanced chip design expertise as the semiconductor industry navigates an era of rising complexity and shrinking transistor geometries.

“As semiconductor designs become more sophisticated, our partners are looking to Arm to help accelerate development timelines and reduce costs,” Haas said. “Our pre-integrated Compute Subsystems offer a compelling solution, allowing chip designers to bring products to market faster while benefiting from Arm’s energy-efficient architecture.”

Royalty Model and Subscription Strategy Provide Long-Term Stability

A key factor in Arm’s consistent revenue growth is its transition to a subscription-based licensing model, which provides more predictable revenue streams. The company’s Total Design (ATD) ecosystem, which includes partners in ASICs, electronic design automation (EDA), backend services, chiplets, and software, is also accelerating the adoption of Arm-based custom chips.

This shift is helping Arm capture higher royalties per chip, particularly as Armv9 and CSS become industry standards. Armv9 now accounts for a significant portion of royalties, as companies upgrade from older architectures like Armv8. The company noted that high-performance cloud compute chips have increased from just 8 cores in 2016 to 192 cores in 2024, underscoring the growing complexity—and revenue potential—of Arm-based processors. Arm’s expansion into automotive, cloud, and AI markets has allowed the company to gain market share in an industry expected to grow at a compound annual growth rate (CAGR) of 8%.

Near-Term Guidance and Future Outlook

Arm provided bullish guidance for its fiscal fourth quarter, projecting:

• Revenue between $1.175 billion and $1.275 billion
• Non-GAAP operating expenses of approximately $590 million
• Fully diluted earnings per share (EPS) between $0.48 and $0.56

For the full fiscal year, Arm expects revenue in the range of $3.94 billion to $4.04 billion, reflecting continued growth in AI, cloud computing, and custom silicon.

“We are entering an era where AI is going everywhere, and Arm’s role in delivering energy-efficient compute solutions will only become more critical,” Haas said.

Arm’s Competitive Position in the AI Era

Arm’s strong quarter highlights its growing dominance in AI computing, cloud infrastructure, and custom silicon solutions. With more than 310 billion Arm-based chips shipped since its inception, the company’s vast ecosystem of developers and partners remains a key competitive advantage.

The company is well-positioned to capitalize on the next wave of AI innovation, as chipmakers and hyperscalers increasingly look for more power-efficient and scalable architectures. As part of its broader strategy, Arm plans to continue investing in advanced semiconductor technologies, strengthen its AI ecosystem, and deepen collaborations with industry leaders.

“Computing is evolving at an unprecedented pace, and Arm is at the center of this transformation,” Haas concluded. “From AI to cloud to autonomous vehicles, we are building the foundation for the future of computing.”

Tags: AI computing, Arm Holdings, Armv9 architecture, cloud infrastructure, custom silicon, semiconductor industry

Category: ARM

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