ARM Holdings Delivers Record Quarter but Soft Outlook Weighs on Shares

Arm Holdings capped off its fiscal year with a record-breaking quarter, driven by booming demand for AI computing across cloud and edge markets. Despite the robust results, shares slid over 8% in extended trading following weaker-than-expected guidance and macroeconomic caution from management. The report reflects both ARM’s growing strategic importance in the AI hardware ecosystem and the broader uncertainty clouding the tech sector amid ongoing tariff negotiations and volatile end-market demand.

Earnings Beat Overshadowed by Muted Forward View

For the quarter ending March 31, ARM posted adjusted EPS of $0.55 versus the $0.53 consensus, while revenue came in at $1.24 billion, slightly ahead of the $1.23 billion estimate. Royalty revenue climbed 18% year-on-year to $607 million, driven largely by increased adoption of Armv9 cores across smartphones and datacenter applications. Licensing revenue also hit a record $634 million, up 53% year-on-year, thanks in part to high-value deals and growing traction for Arm Compute Subsystems (CSS).

Despite the strong quarter, ARM guided Q1 revenue between $1.0 billion and $1.1 billion, with midpoint slightly below the $1.1 billion estimate. EPS was projected at $0.30–$0.38 versus the $0.42 consensus. Management cited higher operating expenses tied to AI R&D investment and a tough licensing comp from Q1 last year.

Key Growth Drivers: AI, Armv9, and Custom Silicon

Momentum in AI-related infrastructure was a standout theme. ARM’s v9-based designs are now found in Google’s Axion CPUs, Microsoft’s Cobalt chips, and NVIDIA’s Grace Blackwell platform. These hyperscaler relationships have accelerated CSS adoption, which management noted now has 13 customers and saw a 7% quarter-over-quarter jump in annualized contract value (ACV) to $1.4 billion.

Smartphone royalties surged 30% year-over-year despite industry shipment growth of just 2%, highlighting rising ARM content per device. Armv9 penetration rose to 30%, up from 25% in the prior quarter, and is expected to drive further gains as devices refresh in the second half of the year.

ARM also cited wins in automotive (GM, a global EV leader) and industrial IoT, as well as a major licensing agreement with the Malaysian government to build an AI compute ecosystem, further diversifying the revenue base.

Analyst Reactions: Optimistic but Tempered

Analysts broadly maintained bullish views on ARM’s long-term positioning but trimmed price targets amid macro caution and higher OpEx.

• Mizuho reiterated its “Outperform” rating but cut its target from $180 to $160, citing solid AI/datacenter positioning but trimming estimates due to cautious near-term guidance.
• Guggenheim lowered its target from $180 to $147, maintaining a “Buy” and emphasizing confidence in ARM’s AI trajectory and design wins.
• Raymond James cut its PT to $140 (from $175) while also maintaining “Outperform,” citing strong royalty momentum and v9/CSS adoption but flagging limited FY visibility.
• Rosenblatt kept a “Buy” and cut its PT to $180 from $203, noting ARM’s strategic role in custom silicon design but highlighting the indirect risks from tariffs and slowing customer forecasts.

Tariff Headwinds and Macro Risks

ARM declined to offer full-year guidance, citing limited visibility tied to geopolitical uncertainty and ongoing U.S. tariff policy. Management said about 10–20% of ARM’s royalty revenue stems from shipments into the U.S., but acknowledged indirect risks from weakened demand in customer end-markets. Analysts flagged this lack of clarity as a concern, especially as multiple ARM partners have also held off on issuing annual forecasts.

Tariffs aside, the expected delay in licensing revenue during Q1 — following last year’s surge — sets up a challenging comp. Additionally, the broader market is watching to see if ARM’s hyperscaler partners will continue scaling their custom silicon programs at pace amid volatile macro signals.

Valuation and Strategic Context

Despite the drop, ARM remains richly valued with a market cap above $130 billion and forward EPS estimates trading at a premium to peers. Mizuho’s revised price target implies a PEG ratio of 1.5x versus the broader semi peer group at 2.0x — a discount that reflects both ARM’s unique licensing model and the volatility surrounding tech hardware amid shifting trade policy.

ARM’s long-term growth remains tethered to its central role in the AI compute stack, from edge devices to cloud data centers. The company continues to invest aggressively in R&D to maintain its lead in low-power, high-efficiency compute — a necessary strategic push as major customers like NVIDIA, Amazon, Microsoft, and Google expand their AI infrastructure commitments.

Bottom Line

ARM delivered a quarter filled with record metrics and expanding design wins, underscoring its entrenched position in the AI chip architecture race. But weak near-term guidance and macro caution provided a dose of reality for investors hoping for a straight-line growth narrative. The pullback may prove short-lived if v9 adoption and AI infrastructure demand continue accelerating into the second half of the year.