Arm Q2 revenue grows 27%, AI demand drives data center business expansion

Arm reported fiscal Q2 2026 revenue of $1.44 billion, up 27% year over year and above the $1.38 billion consensus, with adjusted EPS of $0.52 versus $0.47 expected, as data-center demand offset weakness in smartphones. Licensing revenue jumped 50% to $773 million while royalty revenue rose 8% to $670 million. The company guided Q3 revenue to about $1.54 billion, roughly in line with the $1.53 billion consensus. Arm is shifting from an architecture licensor toward chip manufacturing, with its in-house CPUs projected to contribute up to $2 billion combined in fiscal 2027 and 2028, though CEO Rene Haas said supply capacity remains the binding constraint on growth. Shares reversed earlier after-hours gains of more than 4% to trade down 3.8% following the release. Investors will watch whether Arm can secure enough supply to hit its custom-chip targets and whether licensing momentum holds as smartphone royalties stay soft.