Arm Lifts Revenue Forecast on Surging AI Chip Demand

Arm Holdings issued a second-quarter revenue forecast that surpassed Wall Street expectations, signaling sustained, robust demand for its chip designs as the artificial intelligence boom drives investment in data centers.

Strong Results and Outlook

The UK chip designer projected second-quarter revenue of $1.38 billion, above the average analyst estimate of $1.34 billion compiled by LSEG. The company also anticipates an adjusted profit of 47 cents per share, beating expectations of 43 cents per share.

The strong forecast follows a first quarter that also exceeded estimates. Arm reported revenue of $1.29 billion and adjusted earnings of 45 cents per share, compared to analyst expectations of $1.26 billion and 40 cents, respectively. The results were driven by significant growth in its two main revenue streams:

• Royalty revenue rose 22% to $715 million.
• Licensing revenue grew 23% to $574 million.

AI Drives Data Center Demand

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The company's growth is increasingly tied to the expansion of AI infrastructure. Technology giants like Alphabet and Amazon are developing custom AI chips based on Arm's architecture, boosting both licensing fees and the royalties Arm collects on each chip shipped.

Arm's designs are highly valued for their power efficiency, a critical attribute for data center operators managing the immense energy consumption and heat generated by training and running large AI models. This advantage has accelerated the adoption of its technology for complex data center chips.

New AGI Chip Gains Traction

Arm reported that its new AI data center chip, the AGI CPU unveiled in March, is seeing demand exceed initial expectations. The company said demand for the chip now surpasses $2 billion across fiscal years 2027 and 2028.

In an interview with Reuters, CEO Rene Haas confirmed that cloud firm Oracle has agreed to purchase the new chip and that Arm has secured new customers in North America and China. "I feel better about (supply) than I did 90 days ago," Haas said, adding that the company can now secure supply for more than $1 billion worth of the chips.