Arm forecasts higher-than-expected revenue on surging AI data center demand
Arm Holdings Surpasses Expectations Amid AI Boom
May 6 (Reuters) - Arm Holdings forecast first-quarter revenue above Wall Street expectations on Wednesday, benefiting from higher adoption of its chip technology as tech companies spend heavily on artificial intelligence compute.
Arm shares jumped 12% in after-hours trading.
Financial Performance and Revenue Forecasts
The company expects quarterly revenue of $1.26 billion, compared with analysts' estimates of $1.25 billion, according to data compiled by LSEG.
Arm generates revenue by licensing its technology to companies such as Nvidia and Apple, collecting royalty payments for every product built using its designs.
Energy Efficiency: A Key Advantage
These chip architectures are highly valued for consuming relatively little power — a key advantage for data center operators who are under increasing pressure to control the rising energy demand and heat output that come with running large-scale AI models.
Arm Designs Dominate Smartphones
Arm's designs power virtually every smartphone in the world, giving it an important role in the vast handheld market.
Industry Challenges and Market Impact
However, a shortage of memory chips has strained the industry, hiking the prices of consumer electronics and stalling sales, leaving Arm with potentially lower royalties.
Smartphone chip designer Qualcomm last week provided a dour quarterly revenue forecast due to the memory issues, but its stock jumped on upbeat comments of a demand rebound.
Stock Performance and Revenue Breakdown
Arm shares have soared this year, climbing more than 91%, and outperforming other major chip makers including Nvidia, Advanced Micro Devices and Broadcom, as of Tuesday's close.
Arm's fourth-quarter revenue came in at $1.49 billion, beating estimates of $1.47 billion.
Royalty and Licensing Revenue
Royalty revenue was $671 million, compared with expectations of $697.1 million. Licensing and other revenue was $819 million, while analysts had expected $774 million.
Arm forecast first-quarter adjusted earnings per share of 40 cents, compared with Wall Street estimates of 36 cents.
AI and Data Center Growth
Arm, like its peers, has tapped into the growing market for central processing units, as the rise of artificial intelligence agents introduces the need for substantial general-purpose compute.
"We are very bullish about this data center demand," Arm CEO Rene Haas said in an interview, adding the current quarter includes a "pretty healthy uptick in terms of royalties associated with the data center."
Industry Outlook and Competitor Insights
AMD forecast quarterly revenue above estimates on Tuesday, and said it expects the server CPU addressable market to grow at greater than 35% annually, reaching over $120 billion by 2030. That compares with the 18% growth rate it forecast in November.
AGI CPU: Arm's Next-Gen Data Center Chip
Earlier this year, Arm announced the AGI CPU, a data center chip that will address data-crunching needed for a specific type of AI that is able to act on behalf of users with minimal oversight, instead of responding to queries as part of a chatbot.
Arm has said the chip will add billions of dollars of revenue.
Customer Demand and Supply Chain Efforts
The company said on Wednesday it has secured $2 billion worth of customer demand for the processor across fiscal 2027 and 2028.
Arm has enough capacity secured to fulfill $1 billion of demand the company discussed when it launched the AGI CPU, but has not yet secured it for the second billion dollars' worth of orders, Haas said.
"We're working really hard with the supply chain to fulfill that demand," the CEO said.
(Reporting by Zaheer Kachwala in Bengaluru; Editing by Sriraj Kalluvila and Bill Berkrot)
