--- title: "ARM (Trans): AGI CPU rev. could reach $2bn within 2 yrs" type: "Topics" locale: "en" url: "https://longbridge.com/en/dolphin/post/44790145.md" description: "License revenue rose 50% YoY.The two-year revenue outlook for AGI CPUs was raised to as much as $2.0bn, with first deliveries slated for FY27Q4.However, memory price hikes are pressuring smartphones, so next-quarter royalties are expected to grow only in the low single digits YoY, while leading cloud providers' Arm server share is projected to exceed 60% by year-end." datetime: "2026-11-04T23:19:07.000Z" locales: - [en](https://longbridge.com/en/dolphin/post/44790145.md) - [zh-CN](https://longbridge.com/zh-CN/dolphin/post/44790145.md) - [zh-HK](https://longbridge.com/zh-HK/dolphin/post/44790145.md) author: "[Dolphin Research](https://longbridge.com/en/dolphin.md)" generator: "portal-rs" --- # ARM (Trans): AGI CPU rev. could reach $2bn within 2 yrs **Below is Dolphin Research's compiled Trans of** $Arm(ARM.US) **FY27Q2 earnings call.** **I. Core takeaways** 1\. **FY27Q3 guidance** a. **Revenue**: $1.49bn–$1.59bn, i.e., $1.54bn ± $0.05bn. The mid-point implies ~24% YoY growth. b. **Mix**: License and other revenue to grow a bit over 50% YoY, supported by customer demand and pipeline visibility. Royalty to be up low double-digit QoQ and up low single-digit YoY, as strength in Cloud AI and Physical AI is offset by softer Edge AI smartphone demand and a high base. c. **Opex and EPS**: Non-GAAP OP expense around $825mn. Non-GAAP EPS of $0.56 ± $0.04. 2\. **AGI CPU revenue outlook**: In the past 90 days, the company signed purchase orders with multiple customers and supply deals with vendors. The FY27–28 AGI CPU revenue outlook is raised from $1bn+ last quarter to up to $2bn, with first commercial shipments still slated for FY27Q4; updates will follow with the FY27Q3 print. 3\. **Licensing revenue framework** a. **Beat drivers**: Licensing exceeded company expectations by about $100mn, driven by accelerating appetite for long-term contracts to access Arm tech. b. **SoftBank contribution**: Of the $773mn, SoftBank's tech licensing and design services agreement contributed $209mn, up 17% YoY. This level is expected to hold roughly each quarter for the rest of the fiscal year. c. **ACV**: Annualized contract value rose 12% YoY. Given timing and accounting of large deals, quarterly licensing can be volatile, while ACV better reflects the underlying trend. 4\. **Key financial metrics this quarter** a. **Totals**: Revenue of $1.44bn (+27% YoY), marking a fifth straight quarter of 20%+ growth and a Q2 record. Royalty was $670mn, up 8% YoY. b. **Royalty by segment**: Data center royalty doubled YoY, Physical AI royalty rose 50% YoY, and Edge AI royalty was roughly flat YoY. c. **Profit and FCF**: Non-GAAP OP expense was $774mn (+19% YoY), with OPM at 44.2% (+300bps YoY). Trailing 12-month FCF was $1.1bn. **II. Earnings call details** **2.1 Management highlights** 1\. **Two growth engines**: IP licensing and in-house AGI CPUs share the same platform and software ecosystem, which should accelerate revenue growth. Licensing up 50% is a leading indicator for future royalty as new designs move to production. a. Royalty is expected to accelerate as those designs scale. In parallel, the unified platform should amplify developer and partner leverage. b. Quarterly Arm chip shipments topped 10bn units for the first time, up by about 1.5bn units YoY. The developer community exceeds 30mn. c. **New licenses**: Three new ATAs signed, taking active ATAs to 60+. One major customer signed its first ATA. Four CSS deals were also signed across data center and mobile, helping some new customers accelerate adoption via ATA/CSS. 2\. **Data center**: Share is rising rapidly, with IP and chip efforts reinforcing each other at common customers. Arm expects to deepen its presence as hyperscalers expand deployments. a. Among top clouds, Arm server share rose from 15% in 2024 to over 50% in 2025, and is expected to exceed 60% by end-2026 as Graviton, Axion, Cobalt and NVIDIA platforms scale. This supports a sustained shift toward Arm architectures. b. OCI already offers the Arm-based NVIDIA Vera CPU and plans to launch AGI CPU instances in 2027. Broader ecosystem support continues to build. c. **Efficiency**: Third parties estimate a 38GW global data center power shortfall by 2028. Independent tests indicate AGI CPU delivers about 2x per-rack performance vs. AMD EPYC 9755. 3\. **AGI CPU**: Demand has strengthened since the Mar launch, and capacity expansion is the current focus. The order pipeline continues to firm up, with visibility improving. a. Multiple customer POs extend into calendar 2027, with first commercial shipments on track for FY27Q4. The roll-out remains aligned with customer deployment plans. b. Added supply and customer diversification increase confidence in the up-to-$2bn revenue view vs. 90 days ago. The company continues to secure long-lead items. 4\. **Edge AI**: Always-on AI Agents at the edge enhance Arm's role in PCs and smartphones. This should benefit both compute and graphics roadmaps. a. Arm PCs account for 20% of global shipments. Google's AI-native Google Book lineup is largely Arm-based, and NVIDIA RTX Spark is now in market. b. CSS for Mobile 2, leveraging SME2, lifts Agentic AI workload performance by up to 70%. The first AI-native Mali GPU delivers up to 4x higher frame rates at the same sustained power. c. Memory price hikes have pressured low/mid-tier phones but are offset by higher royalty rates. As the handset market recovers, Edge AI royalties should reaccelerate. 5\. **Physical AI**: Royalty rose 50% YoY, driven by ADAS and IVI. Arm launched Arm Total Design for Physical AI, aggregating over 80 partners. **2.2 Q&A** *Q: What underpins confidence in up to $2bn of AGI CPU revenue, and how is supply secured? Any customers beyond Meta?* A: **Demand exceeds the Mar outlook, and supply lock-ins strengthen confidence vs. 90 days ago.** AGI CPU demand is driven by Agentic workloads and is stronger than during the Mar 'Arm Everywhere' event, with top customer Meta also above expectations. Supply spans wafers, substrates, testers and memory, where Arm has been securing commitments for consecutive quarters with partner support. Visibility was about $1bn in Mar and is now about $2bn, and **there will be multiple customers beyond Meta.** *Q: Shareholder letter suggests per-chip royalty rose low single-digit YoY. Is this a mix issue or a structural trend?* A: **Mainly mix; model by the three businesses rather than the overall average.** About 10bn units shipped this quarter, with phones carrying lower value per unit than servers or Physical AI, so the average fluctuates QoQ. By segment: smartphones were roughly flat; servers posted strong double-digit growth, with higher core counts and a larger CSS contribution, and **data center royalty could grow triple digits over the next few years.** Physical AI rose 50%, providing a tailwind to overall royalty rate. Beyond AGI CPU, data center royalty has two drivers: share gains, **expected to reach 60% by year-end,** with Agentic AI catalyzing new designs like Graviton, Cobalt and Axion. Second, the head node CPU connecting accelerators is shifting from x86 to Arm; beyond NVIDIA Vera Rubin, Google announced Axion will replace x86 to interface with its Gen-8 TPU. *Q: OCP demos showed per-rack advantage for Arm, but AMD claims best perf/W. Where can Arm CPUs most likely beat x86?* A: **Two paths: system-level advantages via custom SoCs, and AGI CPU's energy efficiency and value.** With in-house CPUs, Amazon, Google and Microsoft can balance SoC, DPU and storage, so **performance should be judged at the rack, not per chip.** Arm provides the most efficient cores to enable the most efficient SoCs and systems, reflected in the rapid shift from x86 to Arm among customers. At OCP, benchmarks compared against AMD's prior-gen Turin, and Arm is confident in both results and customer choices. Venice is acknowledged as a strong product, but Arm is confident in its own demand and roadmap; standard parts cannot match what custom designs can do, which is Arm's business model advantage. *Q: Which ODMs or server vendors are involved in AGI CPU reference designs? Targeting enterprise private cloud?* A: **Racks are built by Supermicro, Lenovo and others, and deployed into data centers like OCI.** These partners assemble full racks and bring them online at data centers. The company did not specifically address enterprise private cloud. *Q: Over the long term, is core count or per-gen ASP the bigger driver for AGI CPU revenue?* A: **Core counts will ramp faster, lifting chip ASPs.** Each Agent typically runs as a VM on a CPU core, and cross-core management software is complex, so **CPUs will move from 128 cores to 256 and then above 500,** potentially on an even faster cadence. In Mar, FY27–28 visibility was about $1bn; it is now up to $2bn. The prior plan envisioned about $2bn the following year and about $5bn the year after; if the first two years exceed $2bn, there could be upside, with **targets likely updated at the 'Arm Everywhere' event in H1 next year.** Back in Mar, consensus pegged data center CPUs at about $60bn with limited growth; Arm estimates $100bn by 2030. Now some in the industry talk about $200bn+, which Arm sees as broadly reasonable if not conservative, as Agentic workloads are CPU-constrained and per-core performance and efficiency will be key. *Q: Will AGI CPU contribute revenue in the Sep or Dec quarters of FY27?* A: **Assume shipments start in FY27Q4.** If there are small FY27Q3 shipments, Arm will disclose, but any volume would be limited. The target is FY27Q4. *Q: Will data center reach about one-third of royalty in FY27 and move toward 45% in FY28?* A: **It may not reach one-third this year, but will get there soon.** The company did not quantify mix, but offered a modeling framework: Edge AI royalty is roughly flat this quarter and resumes growth from FY27Q4; data center grows double-digit and was about 20% of total royalty last year; Physical AI grows about 20%–30%. *Q: How concentrated is Cloud AI royalty, e.g., is ~60% from three customers?* A: **Amazon, Google and Microsoft are the largest contributors, with NVIDIA ramping fast; these four account for the majority of data center royalty.** No specific percentages were disclosed. *Q: Status of the second-gen AGI CPU—still taping out late this year or early next, with volume in 2028?* A: The company did not disclose second-gen timelines. Management noted the market operates on an **\~18–24 month** production cadence; the first gen is entering volume, so the second-gen timing can be inferred. *Q: Will you add networking and high-performance I/O to the compute chip line?* A: No specific plans were disclosed, only that connectivity, I/O and networking are all being evaluated. Products are developed for rack-level system performance, and data ingress/egress efficiency is as important as CPU, which may become a larger source of differentiation. *Q: Any architecture licenses this quarter? Is $773mn a new structural level?* A: **Licenses are mainly ATA and CSS, and licensing will continue to rise in FY27Q3 and Q4.** Architecture licenses are now very few. The company did not call this quarter a new normal; FY28 will be discussed after the next two quarters, though the **pipeline is stronger than at the start of the year.** At the start of the year, Arm expected more growth from royalty, but AI and Agentic workloads have sustained new license demand and product variants. Like the past two years, many are non-renewal, hard-to-forecast large deals; **ATA/CSS licenses typically convert to royalty in 12–24 months.** Handset headwinds from memory-driven high comps mostly end in FY27Q3. From Jan–Feb next year, YoY compares will ease. *Q: Will higher-core CPUs enable higher per-core pricing, e.g., with added networking and I/O?* A: **High-core-count chips have some pricing elasticity and room.** Since the AGI CPU launch, memory prices have surged, DC builds are more complex, and labor is tighter, so Arm will avoid pushing prices too hard. But larger, higher-core-count chips **have pricing headroom,** which will be evaluated holistically. *Q: If smartphone units fall double-digit again next year, will royalty repeat this year's pattern?* A: **External forecasts imply flat handset units next year, and Arm expects double-digit growth in mobile royalty.** External estimates are about -1%, while partners broadly expect flat; the memory constraint has already hit and is likely to persist rather than worsen. Armv9 penetration is above 50%, so that tailwind is moderating, but CSS penetration continues to rise. Multiple partners are using next-gen CSS, which carries higher royalty rates and chip prices, so growth should outpace the market materially. *Q: AMD raised server CPU guidance by several bn dollars. As a first-time chip vendor, does Arm have sufficient scale to secure capacity?* A: **Arm acknowledges it is smaller than AMD, but it has long-standing ties with TSMC and memory vendors and planned ahead.** AMD has many SKUs, buys large capacity at TSMC and has decades-long relationships; Arm also has long-standing partnerships with TSMC, Micron, Samsung and SK Hynix and has shared long-term plans. **Industry supply will stay tight,** and Arm has worked with partners for over a year on this platform, treating it as a 5–10 year commitment. The company will work to lock supply for the expanded demand. *Q: With higher-cost supply for AGI CPU, can costs be passed through? How will GPM evolve?* A: **First-gen GPM is in the 30%–40% range, moving toward 50%+ on the next gen.** Memory is the largest driver of higher system costs, creating margin pressure, but Arm has pricing flexibility and has already implemented increases since project start. The company is not overly concerned and aims to follow the market without overburdening end customers. Prior guidance was high-30s to low-40s GPM for the first gen, and actual could be slightly lower. As Arm takes on more of the stack and reduces partner dependence, **the next gen should reach 50%+ industry levels,** with quarterly updates after FY27Q4 shipments begin. \ **Risk disclosure and statements:**[**Dolphin Research disclaimer and general disclosure**](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [AMD.US](https://longbridge.com/en/quote/AMD.US.md) - [9984.JP](https://longbridge.com/en/quote/9984.JP.md) - [GOOG.US](https://longbridge.com/en/quote/GOOG.US.md) - [META.US](https://longbridge.com/en/quote/META.US.md) - [ARM.US](https://longbridge.com/en/quote/ARM.US.md) - [GOOGL.US](https://longbridge.com/en/quote/GOOGL.US.md) - [GOOGN.US](https://longbridge.com/en/quote/GOOGN.US.md) - [METAM.US](https://longbridge.com/en/quote/METAM.US.md) - [GOOGM.US](https://longbridge.com/en/quote/GOOGM.US.md) - [SFTBY.US](https://longbridge.com/en/quote/SFTBY.US.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**