Arm Holdings ADR (NASDAQ: ARM) shares surged 6% in premarket trading Thursday after the chip design company reported quarterly results that beat expectations and issued an optimistic outlook, supported by strong licensing activity and rising royalty income.
The company’s results underscored accelerating momentum in advanced chip designs and growing customer investment in next-generation AI and computing technologies.
Arm reported diluted earnings per share of $0.39 for the fiscal second quarter, topping analyst expectations by $0.08. Revenue came in at $1.14 billion, up 34% year-over-year and ahead of the $1.06 billion consensus estimate.
Royalty revenue climbed 21% to $620 million, driven by a richer chip product mix and continued adoption of the Armv9 architecture, which commands higher per-unit rates. Licensing revenue surged 56% year-over-year to $515 million, boosted by several major contract wins and the conversion of prior backlog.
“Arm’s FY2Q26 print was a beat top and bottom line – both licensing and royalties strong,” said Morgan Stanley analyst Lee Simpson.
For the fiscal third quarter, Arm forecast revenue between $1.18 billion and $1.28 billion—well above the $1.15 billion expected by analysts. The company projected earnings per share of $0.41, suggesting improving operating leverage as licensing activity continues to scale.
Operating expenses are expected to remain elevated at around $720 million, compared with the $675 million analyst forecast. “High opex confirmed, which suggests the company is building for long term demand, much as expected,” analysts added.
Arm’s strategic growth continues to center on data-center and AI markets, with notable strength in smartphones and automotive applications. The company pointed to expanding adoption of its Neoverse platform by hyperscalers such as Amazon, Google, and Microsoft, as well as the rollout of its Lumex CSS architecture, which delivers up to 5× faster AI CPU performance and 3× greater energy efficiency.
Recently, Arm sold its Artisan Foundation IP business to Cadence Design Systems for $131 million to further concentrate on its CPU and system IP portfolio.
Investors remain focused on Arm’s ability to capture growing demand from cloud providers and semiconductor companies designing custom chips. With strong margins, a steady stream of royalty income, and clear revenue visibility, Arm continues to demonstrate robust profitability and long-term growth potential.