Arm predicts higher-than-expected revenue as AI data center demand surges

issued Thursday, May 7, 2026 · 07:53 AM

[BENGALURU] Arm Holdings Inc. on Wednesday (May 6) said it expected first-quarter sales to beat Wall Street expectations as the company benefits from increased adoption of its chip technology as tech companies spend heavily on artificial intelligence computing.

Arm shares rose 12% in after-hours trading, but reversed to fall 5.49% after executives told analysts on a conference call that the company had not yet secured the supply to meet demand for new chips, and analysts questioned the cost of entering the company’s chip manufacturing business.

The company expects quarterly revenue of $1.26 billion, compared to analysts’ expectations of $1.25 billion, according to data compiled by LSEG.

Arm makes money by licensing its technology to companies like Nvidia and Apple, and collects royalty payments on all products built using its designs.

These chip architectures are praised for their relatively low power consumption, a key advantage for data center operators who are under increasing pressure to control the increased energy demands and heat generation associated with running large-scale AI models.

Arm design that dominates smartphones

Arm’s designs are in nearly every smartphone in the world and play a key role in the vast handheld market.

But a shortage of memory chips is straining the industry, driving up prices for consumer electronics and slowing sales, which could reduce Arm’s royalties. Qualcomm, a smartphone chip designer, announced a difficult quarterly sales outlook last week due to memory issues, but its stock soared on positive comments about demand recovery.

Arm stock has soared this year, rising more than 91% and outperforming other major chipmakers including Nvidia, Advanced Micro Devices and Broadcom as of Tuesday’s close.

“It was a very tough regime for them, because expectations were very high,” said Jay Goldberg, an analyst at Seaport Research Partners. “It was a good number, but it wasn’t good enough.”

Arm’s fourth quarter revenue was US$1.49 billion, beating expectations of US$1.47 billion.

Royalty income was US$671 million, compared to expectations of US$697.1 million. License and other revenue was US$819 million, compared to analysts’ expectations of US$774 million.

Arm expects first-quarter adjusted earnings per share of 40 US cents, compared with Wall Street’s expectation of 36 US cents.

Like its peers, Arm has entered the growing market for central processing units as the rise of AI agents introduces the need for substantial general-purpose computing.

“We’re very bullish on the demand for this data center,” Arm CEO Rene Haas said, adding that this quarter included “pretty healthy royalty growth related to data centers.”

Earlier this year, Arm announced the AGI CPU, a data center chip that handles the data processing needed for certain types of AI that can work on your behalf with minimal oversight, rather than answering queries as part of a chatbot.

Arm said the chip would increase revenue by billions of dollars.

Although Arm said it had enough production capacity to meet $1 billion in demand for AGI CPUs when it launched, it has not yet secured orders worth $2 billion, Haas said.

“The market sees this as a party spoiler,” said Michael Ashley Shulman, a partner at asset management firm Cerity Partners. “We’ll probably get the supply, but the question for the market is whether it comes quickly enough and what happens when more demand comes.” Reuters