Arm Holdings' Q1 Earnings Report Sparks Concerns Amid Business Shift

Arm Holdings (NASDAQ:ARM) shares fell 11% after its Q1 FY26 earnings report, but analysts recommend investors remain optimistic about the company's future. Despite the decline, analysts believe Arm is investing in its transformation, positioning itself for long-term success.

Arm Holdings PLC (NASDAQ: ARM) reported its Q1 FY26 earnings on July 31, with shares declining 6% in pre-market trading. The company's bottom line came in at $130 million, or $0.12 per share, compared to $223 million, or $0.21 per share, last year. Excluding items, adjusted earnings were $374 million or $0.35 per share [1].

Revenue for the period rose 12.1% to $1.053 billion from $939 million last year. Royalty revenue grew 25% to $585 million, while licensing revenue declined 1% to $468 million [2].

The company's CEO, Rene Haas, announced plans to increase R&D spending on AI initiatives and develop custom chips and chiplets in addition to its licensing model. Arm's designs power nearly all smartphones and are deployed in data-center and IoT devices. The company signed three new Arm Compute Subsystems agreements in the quarter [3].

Despite the decline in EPS, analysts remain optimistic about Arm's future. The average target price for ARM Holdings PLC is $144.74, with a high estimate of $210.00 and a low estimate of $76.54. This implies a downside of -11.38% from the current price of $163.32 [2].

Key Takeaways:
- Revenue Growth: Arm reported a 12% year-over-year increase in revenue, reaching $1.053 billion.
- Royalty Revenue: Royalty revenue grew 25% to $585 million, setting a new Q1 record.
- Licensing Revenue: Licensing revenue declined 1% to $468 million.
- EPS: EPS declined 43% year-over-year to $0.12 per share.

Arm Holdings' Q1 FY26 earnings demonstrate a mix of growth and decline, with revenue increasing while EPS and net income decreased. The company's focus on AI and custom chips, along with its strong position in the smartphone and IoT markets, provides a solid foundation for long-term success.

References:
[1] https://www.rttnews.com/3559807/arm-holdings-plc-reports-drop-in-q1-income.aspx
[2] https://www.tradingview.com/news/gurufocus:600b03cbd094b:0-arm-holdings-arm-stock-plunges-after-disappointing-q2-eps-outlook/
[3] https://morethanmoore.substack.com/p/arm-2026-q1-financials