TLDR
- Arm Holdings beat Q3 estimates with 43 cents EPS and $1.24 billion revenue but shares plunged over 10% after hours
- Record royalty revenue of $737 million up 27% year-over-year exceeded expectations driven by AI demand
- Licensing revenue of $505 million missed analyst estimates of $520 million sparking investor concerns
- Q4 guidance projects $1.47 billion revenue and 58 cents EPS, both above Wall Street forecasts
- Stock down 39% over past year despite four consecutive quarters above $1 billion revenue
Arm Holdings posted impressive third-quarter results but the market response was harsh. Shares dropped more than 10% to approximately $94 in after-hours trading Wednesday.
The chip design company reported adjusted earnings of 43 cents per share for its fiscal third quarter ending December. Revenue hit $1.24 billion, marking a 26% increase from the prior year.
Arm Holdings plc American Depositary Shares, ARM
Wall Street had expected 41 cents per share and $1.23 billion in revenue. Arm cleared both hurdles but investors focused elsewhere.
Record Royalties Can’t Save the Day
Royalty revenue stood out as a bright spot. The segment generated $737 million, climbing 27% from last year and beating the $708 million consensus.
AI computing demand fueled the growth. Data centers, smartphones, and edge AI applications all contributed to the record performance.
CEO Rene Haas highlighted the momentum in a shareholder letter. “Arm delivered a record revenue quarter as demand for AI computing on our platform continues to accelerate,” he wrote.
This marked the company’s fourth straight quarter topping $1 billion in revenue. The Armv9 chip technology commands higher royalty rates than older versions.
Major customers like Apple and Qualcomm rely on Arm’s designs for smartphones. Microsoft and Nvidia use the technology for cloud server processors.
Licensing Shortfall Triggers Selloff
The problem emerged in licensing revenue. This segment posted $505 million, growing 25% annually but falling short of the $520 million estimate.
Licensing fees represent upfront payments for chip design access. These deals signal future royalty streams, making them a key indicator.
Guggenheim Securities analysts pointed to concerns about smartphone unit volumes next year. Broader worries about AI’s software impact also weighed on sentiment.
The stock has struggled this year. Shares are down 4% in 2026 and have tumbled 39% over the past 12 months.
Strong Outlook Ahead
Arm’s fourth-quarter guidance topped expectations. The company projects revenue of $1.47 billion, plus or minus $50 million.
Adjusted earnings should reach 58 cents per share, plus or minus 4 cents. Analysts had forecast $1.44 billion in revenue and 57 cents per share.
The guidance reflects continued strength in AI-related markets. Demand for power-efficient computing solutions remains robust across cloud, edge, and physical environments.
Arm’s business model generates revenue through licensing and royalties. The licensing miss raised questions despite the strong overall performance and forward outlook.
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