Arm Holdings Q1 Revenue Beats Estimates, But Analysts Warn of Margin Trouble Ahead

Arm Holdings reported Q1 revenue of $1.053 bln, up 12% YoY, but missed analyst estimates. The company expects Q2 revenue of $1.01 bln to $1.11 bln and adjusted earnings of 29-37 cents per share. Analysts have revised their ratings, with Needham's Shi reiterating a Hold rating and Goldman Sachs' Schneider reducing his price forecast from $160 to $150. Arm's transition from a pure IP licensing model to a product-centric approach is expected to pressure earnings, but analysts remain optimistic about the company's long-term prospects.

Arm Holdings (NASDAQ: ARM) reported its first quarter fiscal year 2026 (ended June 30, 2025) revenue of $1.053 billion, up 12% year-over-year, but fell short of analyst expectations. The company's adjusted earnings per share (EPS) were $0.35, in line with estimates. The company expects Q2 revenue of $1.01 billion to $1.11 billion and adjusted EPS of 29-37 cents per share [1].

The company's royalty revenue grew 25% year-over-year to $585 million, driven by the increasing adoption of the Armv9 architecture and Arm Compute Subsystems (CSS). Licensing revenue declined 1% to $468 million. Arm's designs power nearly all smartphones and are deployed in data-center and IoT devices, with more than 70,000 organizations running workloads on Arm-based servers [1].

Analysts have revised their ratings following the Q1 results. Needham's Shi reiterated a Hold rating, while Goldman Sachs' Schneider reduced his price forecast from $160 to $150. The company's transition from a pure IP licensing model to a product-centric approach is expected to pressure earnings in the near term, but analysts remain optimistic about the company's long-term prospects [2][3][4].

CEO Rene Haas stated that Arm will increase R&D spending on AI initiatives and develop custom chips and chiplets in addition to its licensing model. Arm signed three new CSS licenses during the quarter, two for data-center chips and one for PC chips, with customers including Nvidia, Microsoft, and Google starting to use Arm-based AI accelerators [1][2][3].

Arm's stock has gained 32% year-to-date, but fell 6% in pre-market trading on July 31 following the Q1 results and Q2 guidance. The average one-year price target for ARM Holdings PLC is $144.74, with a high estimate of $210.00 and a low estimate of $76.54 [2][3].

References:
[1] https://newsroom.arm.com/news/arm-q1-fye26-results
[2] https://www.tradingview.com/news/gurufocus:600b03cbd094b:0-arm-holdings-arm-stock-plunges-after-disappointing-q2-eps-outlook/
[3] https://finance.yahoo.com/news/arm-holdings-arm-stock-plunges-121548082.html
[4] https://seekingalpha.com/news/4475626-arm-plummets-but-analysts-urge-investors-to-remain-on-board-amid-business-shift