Arm Holdings beat quarterly estimates and raised its near-term outlook on booming AI infrastructure demand, yet shares fell after hours because the market fixated on a sequential decline in smartphone royalties. The British chip-architecture licensor projected second-quarter revenue of $1.38 billion, ahead of the $1.34 billion consensus, and adjusted earnings of 47 cents per share versus 43 cents expected. First-quarter results already showed the split: royalty revenue climbed 22% year-on-year to $715 million and licensing revenue rose 23% to $574 million, but the smartphone piece of that royalty stream is about to shrink.
The smartphone drag is real but temporary
Management guided for smartphone royalty growth of roughly 10% to 15% for the full year, then immediately noted that the next quarter will see a sequential decline. Finance Chief Jason Child blamed memory shortages crimping handset production and insisted overall spending plans and the long-term financial outlook are unchanged. The market treated the sequential dip as a crack in the AI narrative rather than a supply-chain hiccup.
Data centre momentum is accelerating
The counterweight is the data centre business, where Arm said it has shipped 1.5 billion cores over the past six years and roughly 30% of those shipments landed in the last nine months. Inference workloads, the phase where models actually answer queries, are driving demand for central processors that sit alongside the graphics chips used for training. Arm is no longer just licensing designs; it is now shipping its own data centre CPU, the AGI, and says customer demand for that chip already exceeds $2 billion across fiscal 2027 and 2028.
Oracle is a named customer and supply is loosening
Reuters reported Oracle has agreed to buy the AGI, though Arm disclosed no deal size. The company also said it has secured enough manufacturing capacity to support more than $1 billion of chip shipments, a sign that the foundry bottleneck that plagued the industry is easing for Arm’s node. Jefferies analysts project the new chip could generate $18 billion in fiscal 2031, above Arm’s own $15 billion forecast, but management did not revise its long-term targets during the call.
The market is pricing the wrong risk
Investors are selling a beat-and-raise quarter because one segment, smartphones, will dip for a quarter due to memory shortages, while the segment that actually moves the needle, AI data centre infrastructure, is accelerating at a pace that makes the 30%-in-nine-months statistic the only number that matters. Arm’s model collects a royalty on almost every chip that runs AI inference; the smartphone wobble is noise, the data centre ramp is signal.