TLDR
- Arm Holdings reported fiscal Q3 earnings of 43 cents per share and revenue of $1.24 billion, both exceeding analyst expectations
- Royalty revenue hit record $737 million, climbing 27% from prior year on strong AI computing demand across multiple sectors
- Licensing revenue totaled $505 million, falling short of $520 million estimates and sparking a 10% after-hours stock drop
- Q4 guidance calls for $1.47 billion revenue and 58 cents EPS, surpassing Wall Street consensus forecasts
- Stock down 39% over past year despite fourth straight quarter above $1 billion in revenue
Arm Holdings reported strong third-quarter numbers but investors weren’t buying it. Shares plunged over 10% to around $94 in extended trading Wednesday.
Arm Holdings plc American Depositary Shares, ARM
The chip technology company delivered adjusted earnings of 43 cents per share for the quarter ending December. Revenue jumped 26% to $1.24 billion compared to last year.
Wall Street expected 41 cents per share and $1.23 billion in revenue. Arm beat both metrics but the celebration was short-lived.
Royalty Business Hits All-Time High
The royalty segment stole the show with record performance. Revenue reached $737 million, soaring 27% year-over-year and crushing the $708 million estimate.
AI computing demand fueled the gains. Data centers, smartphones, and edge AI applications all contributed to growth.
CEO Rene Haas emphasized the momentum. “Demand for AI computing on our platform continues to accelerate,” he wrote to shareholders.
This marked the company’s fourth consecutive quarter exceeding $1 billion in total revenue. The Armv9 chip architecture delivers higher royalty rates than older versions.
Major tech companies depend on Arm’s designs. Apple and Qualcomm use the technology for mobile processors while Microsoft and Nvidia deploy it in server chips.
Licensing Weakness Sinks Stock
The trouble emerged in licensing revenue. The segment generated $505 million, rising 25% annually but missing the $520 million forecast.
Licensing fees represent payments for access to chip designs. These deals signal future royalty potential, making them a critical forward indicator.
Guggenheim Securities pointed to smartphone market concerns. Analysts also cited broader technology sector anxiety about AI’s impact on software businesses.
The stock has struggled recently. Shares are down 4% in 2026 and have plummeted 39% over the past 12 months despite consistent revenue growth.
Bullish Q4 Forecast
Management provided upbeat guidance for the current quarter. Revenue is projected at $1.47 billion, plus or minus $50 million.
Earnings per share should land at 58 cents, plus or minus 4 cents. Analysts had forecast $1.44 billion in revenue and 57 cents per share.
The outlook reflects ongoing strength in AI markets. Power-efficient computing solutions continue seeing robust demand across cloud and edge deployments.
Arm operates a dual revenue model. Licensing brings upfront fees for design access while royalties flow from manufactured chips using those designs.
The licensing shortfall dominated investor attention. A $15 million miss overshadowed record royalties, strong revenue growth, and positive guidance.
The company’s technology enables high-performance, energy-efficient computing. This positions Arm well for AI workloads requiring both speed and power management.
Arm executives planned to discuss quarterly results during a conference call Wednesday evening. The stock closed regular trading up 0.3% at $104.90 before the after-hours decline.
