Arm’s Best Quarter Yet: Traders Eye a $170 Slingshot

Arm’s September-quarter print landed squarely in the “AI-everywhere” sweet spot investors wanted to see. Revenue rose 34% year over year to $1.14 billion, non-GAAP EPS came in at $0.39, and management guided the December quarter above consensus on both the top and bottom lines. The mix was clean: record royalties and robust licensing pointed to both expanding deployment and a deepening pipeline. Shares initially popped, but have since chopped in a broad range; for traders, the recent ~$163–$170 zone remains the battleground, with a break in either direction likely setting the next leg.

Versus expectations, Arm out-executed . Q2 revenue of $1.14 billion beat the ~$1.06 billion consensus, and adjusted EPS of $0.39 topped the ~$0.33 Street view. Guidance was also better: for Q3, management sees revenue around $1.23 billion at the midpoint (vs. ~$1.11 billion expected) and adjusted EPS of $0.41 (vs. ~$0.35). Under the hood, royalty revenue reached a record $620 million (+21% y/y) and licensing rose 56% to $515 million, both ahead of internal assumptions and third-party models. The only “miss,” if you want to call it that, is spending—non-GAAP opex is set to step up meaningfully as Arm leans into R&D, something bulls will tolerate so long as the growth and operating leverage persist.

Key drivers were clear. First, smartphones reaccelerated on mix: more Armv9-based chips and uptake of Arm’s compute subsystems (CSS) boosted royalty rates per unit beyond underlying unit growth. Second, the data center round-tripped from promise to delivery: Neoverse royalties more than doubled as hyperscalers scale Arm CPUs (AWS Graviton, Google Axion, Microsoft Cobalt) alongside AI accelerators. Third, automotive and IoT continued to expand, supporting the “AI at the edge” narrative and diversifying Arm’s end-market exposure. On licensing, demand for next-gen architectures, CSS, and Arm Total Access drove outsized deals and lifted annualized contract value by 28% y/y—well above Arm’s longer-term mid- to high-single-digit license growth aspirations.

If there were laggards, they were mostly about costs and cadence rather than demand. Opex is running hot—Q3 non-GAAP opex is guided to ~ $720 million, up sharply y/y—as the company hires engineers and funds multi-year platform bets (CSS expansions, potential chiplets, and even the possibility of moving further into complete SoCs down the road). Licensing can remain lumpy quarter to quarter by design, and while the royalty trajectory is strong, it still depends on broad handset sell-through and hyperscaler deployment timetables. None of that undermines the bigger story, but it’s where bears will camp in quieter tapes.

Management’s tone was confident—and specific about what’s pulling demand forward. CEO Rene Haas emphasized that power availability has become the gating factor for hyperscale build-outs; in that environment, energy-efficient compute wins, and Arm positions itself as roughly “50% more efficient” than alternatives in real-world deployments. That efficiency edge underpins Neoverse share gains in cloud infrastructure and control planes for AI clusters, while CSS shortens customer time-to-market and pushes royalty rates higher. The Meta partnership aims to harmonize software and hardware from AI wearables to data centers, and Arm highlighted traction with Samsung’s Exynos using CSS, plus a broader Android flagship cycle built on Arm’s latest platforms (e.g., Lumex CSS). On pipeline and scope, the company flagged networking/IP expansion (the announced intent to acquire DreamBig Semiconductor for Ethernet controllers) as another lever in data-center-scale designs.

The outlook threads growth with investment. For Q3, Arm expects ~25% y/y revenue growth at the midpoint, with royalties up just over 20% and licensing up 25–30%. Importantly, management is choosing to accelerate R&D while still letting upside flow through to EPS, supported by high-margin royalty dollars. Strategically, Arm continues to position itself as the neutral, ubiquitous compute substrate for AI—from milliwatts at the edge to megawatts in the cloud—while expanding CSS coverage and deepening the developer ecosystem (22 million+ developers). That flywheel remains the hardest thing for rivals to copy and the easiest thing for investors to underestimate.

From the sell-side, the tone was constructive with caveats. KeyBanc lifted estimates and raised its price target to $200, citing beats in both royalties and licensing and a higher Q3 guide. They did note opex growth nearing 40% y/y as Arm “contemplates developing chips,” even if management won’t yet commit to becoming a product silicon vendor. That spending line is a lightning rod: it fuels the platform lead, but it also raises the bar for sustained revenue beats to preserve margin expansion. Still, with data center revenue doubling y/y and smartphones delivering higher royalty rates per chip, most models can absorb the opex as long as the licensing pipeline stays robust.

Tactically, traders have two jobs: respect the range and watch the leadership tape. The stock has been oscillating roughly between $163-$170 since the print; think of $170 as first resistance and $163 as first support, with failed moves beyond either likely to accelerate in today’s factor-driven tape. Momentum in semis is sensitive to rates and to the AI-capex narrative—both are still supportive but choppy. If tech remains the market’s center of gravity, a decisive close above ~$170 on volume could re-ignite the post-IPO momentum trend; conversely, a break back through the mid-$130s would invite a deeper reset toward prior congestion. In between, expect chop as the market handicaps whether Arm’s opex ramp is an investment curve or a margin headwind.

Bottom line: Arm delivered precisely what the bull case wanted—broad-based growth, higher-quality royalties, and an above-consensus guide—while underwriting it with heavier R&D to extend its moat. In an AI cycle where power, efficiency, and developer breadth dictate share, Arm sits on the right side of the structural trends. The next catalyst isn’t a slogan; it’s follow-through in data center deployments and CSS adoption—and whether price can finally clear that ~$170 lid.