Arm Raises Q3 Outlook After 34% Revenue Increase on AI Chip Demand

Arm Holdings has upgraded its guidance for the current fiscal quarter after posting results that beat expectations, driven largely by stronger demand for AI computing and higher chip royalties.

The UK chip design company now anticipates third-quarter revenue near $1.23 billion, above Wall Street’s consensus of about $1.1 billion. Shares initially climbed almost 5% on the news before settling up roughly 3% in later trading.

For the second quarter, Arm reported revenue of $1.14 billion, a 34% increase year-on-year and ahead of analyst forecasts. Adjusted earnings were 39 cents per share, versus an expected 33 cents.

Growth was driven in part by Arm’s Compute Subsystems (CSS), which are end-to-end chip designs that shorten development cycles and attract higher royalties. CEO Rene Haas noted broader CSS adoption alongside rising AI compute requirements has strengthened the company’s outlook.

Arm generates income by licensing its processor designs and collecting royalties on chips that use its technology. Its energy-efficient architectures are gaining traction in data centres, a sector historically led by Intel and AMD. The firm projects its share of CPUs deployed by major cloud providers could approach 50% by 2025.

Royalty revenue rose 21% to $620 million in the quarter, while licensing receipts jumped 56% to $515 million, helped by several large contracts. The company reported expansion across smartphones, cloud infrastructure and automotive chips.

Alphabet’s Google has already incorporated Arm’s architecture into its Axion processors, saying they deliver about 60% better energy efficiency compared with conventional x86-based chips.

Looking ahead, Arm said it will allocate more profits toward designing its own chips — a strategic shift from its traditional role as a pure IP licensor. The move is intended to speed innovation and provide customers with a shorter route from design to production.

As AI workloads reshape the semiconductor industry, Arm’s results signal a broadening influence beyond mobile devices and position the company to support the next generation of intelligent hardware.