Arm Q2 2027: Revenue Beats, but Profit Misses Expectations by Nearly 75%

Arm's fiscal second quarter of 2027 delivered a sharply divided result. Revenue came in at $1.44 billion, up 27% year over year and ahead of the $1.38 billion consensus by about 5%. But GAAP earnings per share landed at just $0.12 against an estimated $0.48, missing by nearly 75%. That gap is one of the widest in the company's recent history as a public company.

The drag on the bottom line came from two specific charges. The quarter absorbed $46.6 million in fair-value losses on publicly listed equity investments and $4.9 million in net expected credit losses tied to Arm China. Making the comparison look even worse, the year-ago quarter had benefited from a $131 million pre-tax gain on the divestiture of the Artisan foundation IP business to Cadence, a one-time tailwind that is now working in reverse as a tough base.

On the revenue side, the standout driver was license and other revenue, which surged 50% to $773 million, fueled by the timing and size of high-value license agreements and contributions from contracted backlog. Royalty revenue rose a more modest 8% to $670 million, helped by a richer mix of higher-royalty Armv9 and Arm CSS products and growing adoption of Arm-based chips in data centers, though that growth was partially offset by memory pricing pressure in the smartphone market.

The bigger story for investors looking ahead is Arm's deepening push into physical silicon. Management flagged that production of the Arm AGI CPU is expected by the end of calendar 2026, but the company also committed to $200 million in manufacturing capacity reservation advances payable in the first half of 2027, alongside a non-cancellable $672 million semiconductor product purchase commitment through 2027. The company was explicit that this production silicon business may carry materially different margin profiles, revenue recognition patterns, and sales cycles than its traditional IP licensing model.

Arm China remains a persistent risk embedded in these numbers. Revenue from that related party fell to $213 million, and the credit loss charges reflect ongoing uncertainty around receivables from that entity. Meanwhile, R&D spending rose 24% to $857 million and SG&A climbed 36% to $343 million as headcount and share-based compensation expanded, underscoring that the cost structure is growing at a pace that the current royalty and licensing mix has yet to fully absorb.