Arm Holdings Plc (ARM) reported record fiscal fourth-quarter revenue of $1.49 billion, beating the $1.42 billion consensus by 4.9%, with adjusted EPS of $0.60 topping the $0.54 estimate. Licensing revenue surged 29% year-over-year to $608 million as cloud and AI chip designers adopted Arm's latest Neoverse V3 and CSS architecture platforms. Total royalty revenue grew 18% to $882 million.
However, shares initially rallied 13% in after-hours trading before reversing to close down 6.0% on Wednesday as executives warned during the earnings call that the company could not fulfill approximately $1 billion in incremental demand for its AGI-class CPU designs due to engineering and validation capacity constraints.
Data Center Royalties More Than Double
Arm's data center royalty revenue more than doubled year-over-year, driven by the proliferation of Arm-based server processors from Amazon Web Services (Graviton4), Microsoft (Cobalt 200), Google (Axion), and Nvidia (Grace CPU). CEO Rene Haas said that Arm-based processors now represent 'approximately 15% of cloud server shipments globally, up from 8% a year ago and on a clear trajectory to 30% by 2028.'
Supply Capacity Crunch
The supply warning stemmed from Arm's custom silicon design services, where demand from AI companies building custom AGI accelerators has overwhelmed the company's 800-person design team. Haas disclosed that Arm has turned away or delayed 'more than $1 billion in potential licensing and design-services revenue' and is aggressively hiring to address the bottleneck. The company plans to grow its engineering workforce by 25% over the next 12 months.