Arm Q2 Revenue Rises 27% as Licensing Growth Outpaces Royalties

Arm Holdings published its fiscal second-quarter results on November 4, 2026, reporting $1.443 billion in revenue for the three months ended September 30, up 27% from $1.135 billion a year earlier. Licensing drove the increase as Arm raised product-development spending and prepared for the first commercial deliveries of its Arm-designed silicon.

The shareholder letter marks a fifth consecutive quarter of year-over-year growth above 20%. Revenue exceeded Arm’s own guidance of $1.38 billion plus or minus $50 million. License and other revenue jumped 50% to $773 million from $515 million, while royalty revenue rose 8% to $670 million from $620 million.

Licensing Builds a Pipeline for Future Royalties

Arm attributed the licensing increase to continued demand for its intellectual property, fluctuations in the timing and size of multiple high-value agreements, and contributions from backlog. It expects the resulting new designs to support faster royalty growth as they enter production, making licensing an important leading indicator for the IP business.

Annualized contract value increased 12% to $1.79 billion from $1.60 billion. Arm defines ACV as annualized committed license fees for active agreements, excluding potential future royalties; it is an operational metric rather than recognized GAAP revenue. The smaller increase in committed fees provides a different view from quarterly licensing revenue, which can fluctuate with customer buying patterns, renewal timing and contract duration.

Higher-rate Armv9 and Arm CSS products and increased deployment of Arm-based chips in data centers lifted royalties, partly offset by the effect of memory pricing on the smartphone market. Arm said data-center royalties doubled year over year, making data centers a substantially faster-growing component of the royalty business.

Spending Shapes Earnings and Cash Flow

GAAP research and development expense rose 24% to $857 million, while selling, general and administrative expense increased 36% to $343 million. Arm linked the R&D increase to next-generation products, hiring and salaries, share-based compensation and engineering costs, partly offset by higher research incentives. Operating income still increased 23% to $201 million, although operating margin slipped to 13.9% from 14.4%.

That operating improvement did not carry through to the bottom line: GAAP net income fell 45% to $130 million from $238 million. The year-earlier quarter included a $131 million pre-tax gain on the Artisan foundation IP sale, contributing to $128 million of other non-operating income then, compared with a $2 million loss in the latest quarter. The absence of that gain helps explain why stronger operating performance coincided with lower GAAP earnings.

Quarterly share-based compensation cost was $376 million, up from $265 million. Arm’s non-GAAP measures exclude equity-settled share-based compensation and other adjustments; on that basis, net income rose 36% to $566 million and diluted earnings per share increased 33% to $0.52.

Cash generation moved in the opposite direction from adjusted earnings. Quarterly operating cash flow fell to $207 million from $567 million, while non-GAAP free cash flow declined to $110 million from $411 million. Arm defines that measure as operating cash flow less purchases of property and equipment and intangible assets, less payments of intangible-asset obligations. The cash-flow statement records outflows of $203 million from contract assets, $64 million from contract liabilities and $149 million from other liabilities, working-capital movements that help explain the weaker quarterly cash generation.

AGI CPU Orders Bring Manufacturing Commitments

Arm says it has purchase orders from multiple customers extending through calendar 2027, with first commercial Arm AGI CPU deliveries on track for fiscal Q4 2027. Its confidence in achieving up to $2 billion of AGI CPU revenue across fiscal 2027 and 2028 has increased over the preceding 90 days, supported by additional supply and customer mix.

The Form 6-K’s subsequent-events disclosures add two manufacturing commitments. In October 2026, Arm entered non-cancellable commitments to buy $672 million of semiconductor products through 2027, with quantities and pricing subject to potential supplier adjustments. A related-party customer made a corresponding commitment, and Arm acts as reseller agent. In November, Arm agreed to reserve manufacturing capacity for 2027 through 2029 and expects to make $200 million of advance payments in the first half of calendar 2027. That agreement includes minimum purchase volumes and potential shortfall payments.

Arm’s third-quarter outlook calls for revenue of $1.54 billion plus or minus $50 million and non-GAAP diluted EPS of $0.56 plus or minus $0.04. It also calls for approximately $825 million of non-GAAP operating expense, up from $774 million in the second quarter, extending the pattern of higher expected revenue and earnings alongside continued investment.

The quarter shows two connected expansion efforts: a licensing pipeline that management expects to feed future royalties, and a silicon business bringing customer orders together with new supply and cash commitments. Converting both into deliveries, royalties and stronger quarterly cash generation is the central execution test established by these results.