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Arm Holdings just turned in the biggest quarter in its history. The stock then fell 13% the next day.
The chip designer reported fiscal second-quarter revenue of $1.44 billion for the period ending September 30, 2026, a 27% jump from a year earlier. It also laid out a long-range target that would turn its new chip-making venture into the core of the business: $15 billion in annual revenue from its Arm AGI CPU by 2031.
Wall Street was in no mood to celebrate. Shares slid in after-hours trading Wednesday, right after the report landed. The decline deepened Thursday, November 6, as a broad selloff hit tech stocks.
Inside the numbers
Arm is best known for licensing its power-efficient CPU architecture. Other companies pay for the blueprints, build the chips, and send Arm a cut of every unit sold.
That model produced two very different growth rates this quarter. Licensing and other revenue surged 50% to $773 million. Royalty revenue grew a more modest 8% to $670 million.
The gap matters. Licensing fees reflect new deals signed today, while royalties reflect chips actually shipping. This quarter, the upfront money outran the per-chip money by more than $100 million.
Inside the royalty line, one segment stood out. Data center royalties doubled during the period, a sign that Arm-based designs are finding real traction in the server racks that power cloud computing and AI.
Still, the overall royalty result came in softer than forecasts, and investors took note. It was one of the main concerns cited alongside the sell-off.
Guidance offered limited comfort. Arm expects third-quarter revenue of $1.54 billion, which sits modestly above estimates.
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The AGI CPU bet
The bigger story is what Arm wants to become. The company is moving beyond pure licensing into selling its own silicon, starting with the Arm AGI CPU.
Arm says it has secured purchase orders for the chip, with orders lined up through 2027. First commercial deliveries are on track for the fourth quarter of fiscal 2027.
The company projects $2 billion in AGI CPU revenue across fiscal years 2027 and 2028. That is the near-term ramp.
The long-term ambition is much larger. Arm is targeting $15 billion in annual AGI CPU revenue by 2031, alongside total company revenue of $25 billion in that same year.
At least one major customer is already on board. Oracle Cloud plans to offer Arm AGI CPU instances in 2027, and Arm has pointed to significant performance advantages over competitors.
Gaining ground with hyperscalers
According to the company’s figures, Arm’s share of the server segment at major hyperscalers climbed from 15% in 2024 to more than 50% in 2025. Arm expects that figure to exceed 60% by the end of calendar 2026.
The AGI CPU is designed to build on that base. Instead of collecting royalties on server chips that other companies design, Arm wants to sell the chips directly and capture far more revenue per unit.
Why the stock fell anyway
The 13% drop had less to do with Arm than with the market around it. Tech stocks plunged Thursday on concerns about potential data center restrictions following the US midterm elections.
The softer royalty performance added fuel.
What this means
The execution risk is the pivot itself. Selling chips is a different business than licensing designs. It brings manufacturing, inventory, and delivery obligations that a pure IP licensor never had to manage. It also puts Arm in more direct competition with some of the companies that license its architecture.
The milestones to watch are concrete. First, whether commercial AGI CPU deliveries arrive in the fourth quarter of fiscal 2027 as promised. Second, whether Oracle Cloud’s instances launch on schedule in 2027. Third, whether the hyperscaler share actually crosses 60% by the end of 2026.
