Arm Q2 earnings beat estimates, stock dips 3%

Chipmaker Arm (NASDAQ:ARM) reported second-quarter earnings that surpassed analyst expectations, but its stock fell 3% in after-hours trading. The chip designer posted adjusted earnings per share of $0.30, beating the consensus estimate of $0.26, while revenue came in at $844 million, exceeding the expected $744.31 million.

The company's revenue increased 5% YoY, driven by record royalty revenue and strong license revenue. Royalty revenue surged 23% YoY to $514 million, primarily due to the continued adoption of Armv9 and smartphone market recovery.

License and other revenue declined 15% YoY to $330 million, which the company attributed to normal fluctuations in timing and size of high-value license agreements.

Arm's CEO Rene Haas commented on the results, stating, "Demand for our high-performance Armv9 and CSS compute platforms continues to exceed expectations, and to accelerate our licensing and royalty revenue growth. AI everywhere is generating new opportunities for the Arm compute platform from the cloud to the edge."

For the third quarter, Arm Holdings provided guidance of $0.32-$0.36 EPS and revenue between $920-970 million. The midpoint of this guidance aligns closely with analyst expectations of $0.34 EPS and $945 million in revenue.

The company's non-GAAP gross margin for Q2 stood at 97.2%, while its non-GAAP operating margin decreased to 38.6% from 47.6% in the prior year's period, reflecting increased investment in engineering.

Arm's annualized contract value (ACV) grew 13% YoY to $1,253 million, and remaining performance obligations (RPO) increased 10% quarter-over-quarter to $2,385 million.