ARM has started its 2027 fiscal year with record revenue from licenses and royalties, while interest in its first proprietary processor for data centers continues to grow. The company states that demand related to the Arm AGI CPU exceeds $2 billion, although it has not yet clarified how much of this amount corresponds to committed orders and how much represents business forecasts not yet converted into sales.
The key points of Arm’s first proprietary processor in 30 seconds
- Arm generated $1.29 billion in the quarter ending June 30, 2026, a 22% year-over-year increase.
- Royalty income reached a record of $715 million, while licensing brought in another $574 million.
- Royalties from data centers more than doubled thanks to the adoption of Arm Neoverse.
- The communicated demand for the Arm AGI CPU exceeds $2 billion, compared to the initially covered capacity of $1 billion.
- First commercial shipments are expected by the end of 2026.
This result strengthens Arm’s position in a market that for decades was dominated by processors based on Intel and AMD’s x86 architecture. The British company continues to generate most of its revenue through intellectual property licensing, but the arrival of the Arm AGI CPU marks a significant change: for the first time in its 35-year history, Arm has designed a complete chip to sell directly.
Record royalties and licenses in the first quarter
Arm closed the first quarter of its 2027 fiscal year, ending June 30, with revenues of $1.29 billion. This represents a 22% year-over-year growth and falls within the range anticipated by the company itself.
Royalty income also increased by 22%, reaching a record of $715 million for a fiscal first quarter. This part of the business comes from payments Arm receives for each processor manufactured and sold using its technology.
Data centers made a notable contribution. Royalties associated with this market more than doubled compared to the same period last year, a growth attributed by Arm to the increasing adoption of its Neoverse platform by cloud providers and server processor manufacturers.
Licensing income grew by 23% YoY, reaching $574 million. These amounts mainly correspond to access that Arm grants to its architectures, cores, subsystems, and other designs so that third parties can develop their own chips.
Arm’s CEO, Rene Haas, linked the results to two trends. On one hand, the expansion of the Arm architecture within data centers. On the other, the shift of artificial intelligence beyond the cloud into personal computers, smartphones, vehicles, industrial devices, and other equipment.
The quarterly comparison tells a different story. Total revenues declined by around 13.4% from the $1.49 billion recorded in the fourth quarter of fiscal 2026. However, this drop did not prevent Arm from reporting the best license and royalty results ever for a first quarter.
The Arm AGI CPU opens a new business line for the company
In March 2026, Arm announced the Arm AGI CPU, its first complete processor designed for data centers. The product has been developed for infrastructure supporting artificial intelligence agent systems, where different agents and models execute tasks, query information, and coordinate processes continuously.
Development was carried out in collaboration with Meta, one of the first companies publicly associated with the project. Haas explained that hardware units have already been delivered to several clients, during a post-results analyst conference.
Entering the silicon business represents a break with Arm’s traditional model. Until now, the company designed architectures and components that it licensed to firms like Apple, Qualcomm, Amazon, Google, Microsoft, Nvidia, and MediaTek. Customers could integrate these designs into their own systems, paying licensing fees upfront and per unit manufactured.
With the Arm AGI CPU, the company now also controls the design of the final product. It may not necessarily manufacture the processors physically — a task typically handled by foundries — but it will sell the finished chip and take on a larger part of the supply chain.
This move allows for higher revenues per processor, although it also introduces new costs and risks. Arm will need to reserve wafers, substrates, memory, encapsulation capacity, and testing services, in addition to managing inventories and demand forecasts.
Demand surpasses initially secured capacity
Arm previously reported that it had sufficient manufacturing capacity to meet around $1 billion in demand during fiscal years 2027 and 2028. Four months after launching the product, Haas increased this estimate to over $2 billion.
The executive noted that the company continues onboarding clients, including several U.S.-based companies and Chinese firms. However, Arm did not specify how many buyers are involved, what volume each has reserved, or what proportion of the $2 billion pertains to binding contracts.
Therefore, this figure should be viewed as an estimate of demand communicated by the company, not necessarily a confirmed order backlog. It’s important because chip manufacturing often requires commitments months in advance, and customer plans can change before shipments begin.
Haas mentioned that supply visibility has improved over the past 90 days. Arm is working with its industry partners to secure various components—from silicon wafers to substrates, memory, and testing capacity.
Commercial manufacturing is slated for late 2026. The company expects to provide more details during its third-quarter earnings report, which will give a clearer view of the end of 2027 and fiscal 2028.
Arm has not publicly identified the foundry producing the AGI CPU nor detailed its manufacturing process, core configuration, power consumption, or pricing. It also has not yet explained how the processor will integrate with AI accelerators from Nvidia, AMD, or other suppliers.
Arm will separate its chip business accounts
Initially, Arm will include the revenues from the Arm AGI CPU within its overall results. Jason Child, Arm’s CFO, explained that the silicon business will be reported separately once it accounts for at least 10% of total revenue.
Current forecasts suggest this breakdown could begin during fiscal 2028. From that point on, investors will be able to clearly distinguish revenue from direct processor sales versus traditional licenses and royalties.
This new business segment could also impact Arm’s margins. Licensing intellectual property requires investment in R&D but does not obligate the purchase of physical units. Selling complete chips involves manufacturing costs that could reduce gross margins but increase overall revenue volume.
During a previous presentation, Arm estimated that its long-term goal for the AGI processor business is approximately $15 billion in revenue with at least a 50% gross margin. This is a business target, not a guaranteed figure.
Meanwhile, the growth in data center royalties offers a less risky path. Even if the Arm AGI CPU does not meet initial projections, the company can continue earning from processors designed by other manufacturers using Neoverse technology.
Frequently Asked Questions
What is the Arm AGI CPU?
The Arm AGI CPU is the first complete processor designed by Arm for data centers. It targets artificial intelligence infrastructure, with commercial shipments expected by late 2026.
Does Arm have confirmed orders worth $2 billion?
Arm states that demand exceeds $2 billion, but has not clarified whether all that amount corresponds to firm orders. Some may reflect commercial interest or forecasts not yet converted into sales.
How much did Arm generate in the first quarter of 2027?
The company reported $1.29 billion in revenue for the three months ending June 30, 2026, representing a 22% increase from the previous year.
Why are Arm’s data center revenues growing?
Royalty income from data centers more than doubled due to the adoption of Arm Neoverse processors and platforms by cloud providers and server chip manufacturers.
Sources:
- Arm, Q1 FY 2027 results.
- Arm, shareholder letter for the quarter ending June 30, 2026.
- Arm, Q1 FY 2027 earnings conference.
- Arm, FY 2026 annual report.
- U.S. Securities and Exchange Commission (SEC), Arm Holdings financial filings.
