Arm Holdings' Q1 2026: Unpacking Contradictions in CSS Revenue, Neoverse Growth, and Backlog Expectations

CSS adoption and revenue impact, Neoverse share in hyperscalers, Arm China revenue impact, v9 adoption percentage, and backlog growth expectations are the key contradictions discussed in Arm Holdings' latest 2026Q1 earnings call.



Strong Revenue Performance and Royalty Growth:
- Arm Holdings plc reported its highest revenue quarter with $1.05 billion, the second successive quarter over $1 billion.
- Royalty revenue reached $585 million, up 25% year-on-year.
- The growth was fueled by the insatiable demand for AI workloads and strong momentum across all end markets, particularly in data centers and smartphones.

Market Share Expansion in Data Centers:
- Arm Neoverse is expected to reach nearly 50% market share in hyperscale data centers this year.
- This is driven by market share gains in both general-purpose workloads and AI-specific workloads, with significant adoption in products like NVIDIA Grace, AWS Graviton, and Microsoft Cobalt.

CSS and IP Licensing Growth:
- Arm signed 3 additional CSS licenses this quarter, more than doubling its CSS licenses from a year ago.
- The company also reported a 28% year-on-year increase in annualized contract value (ACV), driven by new licensing deals with a major smartphone OEM and SoftBank's IP licensing expansion.

AI and Edge Compute Developments:
- Arm's AI capabilities, including Ethos NPUs and v9 CPUs, are increasingly integrated into premium smartphones, enabling local AI and real-time intelligence.
- This is evident in products like the Samsung Galaxy Flip 7 and Xiaomi XRING O1, which are based on Arm's latest compute subsystem platform.