Arm shares rebound after record Q1 revenue, AI chip demand surge

Arm Holdings reported record first-quarter fiscal 2027 revenue of $1.29 billion on Wednesday, up 22% year-over-year, as surging demand for its energy-efficient chip designs in AI data centers more than offset growing weakness in the smartphone market. The results sent shares on a volatile ride — falling nearly 8% in after-hours trading before rebounding sharply on Thursday.

Non-GAAP earnings per share came in at $0.45, beating the consensus estimate of $0.40 by 12.5% and rising 29% from a year earlier. Royalty revenue grew 22% to $715 million while licensing revenue rose 23% to $574 million.tikr+1

Data Center Momentum Accelerates

The standout metric was data center royalty revenue, which more than doubled year-over-year for the second consecutive quarter. Arm has now shipped more than 1.5 billion Neoverse cores, with 500 million of those shipped in just the last nine months — compared to six years for the first billion.benzinga+3

The company's AGI CPU, a custom data center chip unveiled in March, is exceeding initial expectations. Demand now surpasses $2 billion across fiscal years 2027 and 2028, well above the $1 billion in manufacturing capacity Arm has secured. Oracle ↗ 5.19% has agreed to purchase the new chip, CEO Rene Haas told Reuters, and the company has already begun deliveries to multiple customers.reuters

"Our confidence in achieving upside to our $1 billion opportunity for the Arm AGI CPU business has increased in the past 90 days," Haas said on the earnings call.tikr

Smartphone Weakness Clouds Outlook

Despite the strong results, Arm flagged softening smartphone royalties as higher memory costs push handset prices up across mid-range and premium tiers. CFO Jason Child now guides full-year royalty growth toward the high teens rather than 20%, and expects smartphone royalties to decline sequentially next quarter.investing+3

The cautious smartphone commentary triggered the initial after-hours selloff on Wednesday, with shares dropping about 8% to $225. By Thursday's regular session, however, the stock rebounded as investors focused on the data center story.tikr+3

Guidance and Analyst Reaction

For the second quarter, Arm projected revenue of $1.38 billion and adjusted EPS of $0.47, both above Wall Street estimates of $1.34 billion and $0.43 respectively. JPMorgan raised its price target to $255, Jefferies maintained a Buy at $320, while Bank of America cut its target to $260 from $460 citing peer multiple compression.finance.yahoo+3

Jefferies analysts project AGI CPU sales could reach $18 billion by fiscal 2031, surpassing Arm's own forecast of $15 billion. The constraint on that business, Haas noted, now sits entirely on the supply side rather than demand.reuters+1