Arm’s AI-Fueled Rise: Revenue Jumps and a New Push into Building Chips

Arm Holdings lifted its forecast for the current quarter after reporting results that outpaced expectations, a performance driven largely by surging demand for AI workloads and a pickup in chip royalty income.

The UK chip design company said it now expects third-quarter revenue of roughly $1.23 billion, comfortably above the Street’s $1.1 billion projection. The update sent shares higher intraday, with gains easing somewhat by late trading.

In the second quarter, Arm posted $1.14 billion in revenue, a 34% increase from the prior year and ahead of analysts’ estimates. Adjusted earnings were 39 cents per share, beating forecasts of 33 cents.

Much of the momentum came from Arm’s Compute Subsystems (CSS) — full chip blueprints that shorten development timelines and command larger royalties. CEO Rene Haas highlighted growing customer adoption of CSS and robust AI compute demand as key reasons the company raised its outlook.

Arm’s business model combines licensing of its processor designs with royalties collected on each chip sold that uses its technology. Once synonymous with low-power mobile cores, Arm’s architectures are now making inroads in data centres historically dominated by Intel and AMD. The company said it expects its CPU footprint among leading cloud providers to approach nearly 50% by 2025.

Royalty revenue climbed 21% to $620 million, while licensing revenue surged 56% to $515 million, helped by several large, high-value agreements. Growth was broad-based across smartphones, cloud servers and automotive applications.

Alphabet’s Google has already adopted Arm’s architecture in its Axion processors, citing about 60% better energy efficiency versus conventional x86 chips.

Looking forward, Arm disclosed plans to funnel more of its profits into designing its own chips — a strategic shift from its long-standing role as a pure intellectual property provider. The move is intended to accelerate innovation and give customers a faster route from design to production.

As AI reshape the semiconductor landscape, Arm’s latest results underscore its expanding influence beyond the smartphone market and its ambition to power a new generation of intelligent devices.