Arm Holdings Earnings Preview: AI Optimism Faces Its Next Big Test

Every major AI chip story seems to lead back to Arm Holdings (ARM) as the industry's biggest players rely on the company's architecture to build their processors. As ARM gears up for its fiscal Q1 earnings on July 29, investors are eager to see if the company can continue to translate strong demand into sustained growth needed to justify its premium valuation.

ARM’s AI Story Is Now Bigger Than Smartphones

Valued at $277.7 billion, Arm Holdings develops the processor technology that powers billions of chips globally, licenses that technology to semiconductor firms, and gets royalties on each chip shipped. The company earns money through licensing revenue and royalty revenue. While historically, Arm's business was dominated by smartphones, today its processors power PCs and laptops, cloud servers, AI data centers, automotive chips, smart TVs, IoT devices, and much more. Thanks to AI, the company now has new growth opportunities in Cloud AI, Edge AI, and Physical AI. 

In fact, according to management, over 350 billion chips made with Arm's technology have been deployed worldwide, supported by an ecosystem of over 22 million software developers in fiscal 2026. This leading position in AI infrastructure has made investors optimistic, pushing its stock up 138% year-to-date (YTD), outperforming the broader market. 

In the fourth quarter of fiscal 2026, total revenue climbed 20% year-over-year (YoY) to $1.49 billion. Licensing revenue increased 29% to $819 million, while royalty revenue rose 11% to $671 million.

Hyperscalers are investing aggressively in custom silicon, making ARM the preferred foundation for those chips. Notably, Alphabet's (GOOG) (GOOGL) Google continues to deploy Arm-based Axion CPUs alongside its TPU systems. Amazon (AMZN) is extending Gravity, Trainium, and Nitro. Microsoft (MSFT) is moving forward with Cobalt processors for Azure. Nvidia's (NVDA) next-generation Vera CPU is likewise built on Arm architecture, and Meta (META) continues to work with Arm on future AI infrastructure. According to Goldman Sachs, this momentum will continue as hyperscalers together are expected to spend over $920 billion in AI capex in 2027.

The AGI CPU Faces Its First Real Test

Until recently, Arm primarily designed, licensed, and collected royalties for its technology. But now the company has expanded to its own Arm AGI CPU for AI data centers to capitalize on the next wave of AI infrastructure growth, with Meta as the lead partner and co-developer. Nvidia, Amazon, and Google already use Arm-based CPUs as host processors alongside AI accelerators, while companies such as Cerebras (CBRS), OpenAI, Rebellions, and Positron (POSC) are also adopting the new Arm AGI CPUs.

Management has already disclosed more than $2 billion of customer demand for its Arm AGI CPU across fiscal years 2027 and 2028, more than double what the company initially anticipated when launching the platform. However, due to supply-chain capacity constraints, the company maintained its initial $1 billion AGI CPU business revenue outlook. As AI evolves, the company believes CPUs are becoming as relevant as GPUs. ARM now expects the data center CPU opportunity will exceed $100 billion by 2030. Investors will want to get more updates on this expansion of Arm's business model beyond royalties and licensing into a much larger revenue opportunity. 

Investors Now Want More Than AI Headlines

Investors already know the AI story is strong. But now they seek proof the heavy AI spending will continue to translate into sustainable growth. Arm enters fiscal 2027 from a position of strength with three consecutive years of revenue growth exceeding 20%. The company has expanded across cloud AI, edge AI, and physical AI and deepened relationships with nearly every major AI infrastructure provider. This is why management and analysts remain optimistic for the upcoming quarter. This optimism is reflected in its lofty valuation of 119x forward 2027 earnings, which leaves very little room for error.

For the first quarter of fiscal 2027, management expects total revenue growth of roughly 20% at $1.26 billion (plus or minus $50 million), with adjusted EPS landing at $0.40 (plus or minus $0.04 per share), in line with the consensus estimates. For the full fiscal year, analysts expect earnings to increase by 22.5%, before rising another 42% in fiscal 2028.

On Wall Street, ARM stock holds an overall rating of “Moderate Buy.” Among the 31 analysts covering the stock, 18 rate it as a “Strong Buy,” three rate it a “Moderate Buy,” nine say it is a “Hold,” and one suggests a “Strong Sell.” ARM's average target price of $317.48 suggests a potential upside of 25% from current levels, while the highest price estimate of $500 indicates a possible 98% rally over the next 12 months.