By Prathik Jayaprakash and Max A. Cherney
Nov 4 (Reuters) - Arm Holdings on Wednesday forecast third-quarter revenue marginally ahead of Wall Street estimates as the company continues to benefit from the boom in AI spending.
Arm shares were choppy in the extended session on Wednesday, falling about 1% as the conference call with analysts began.
Demand for Arm-based technology has benefited from the AI boom, as major cloud companies develop custom processors for data-center workloads. Arm's architecture
is prized for its power efficiency, an increasingly important factor as operators seek to rein in the energy and cooling costs of running large AI models.
"We're just seeing huge pickup for all technology around the datacenter space," Arm CEO Rene Haas said in an interview with Reuters.
The company now expects it will sell $2 billion worth of its central processing unit (CPU), the AGI CPU, in its fiscal years 2027 and 2028. The company has worked with Taiwan's TSMC and other chip suppliers to secure enough raw materials to produce the $2 billion, Haas said.
"We think the two (billion) is now very achievable," Haas said.
A memory shortage has gripped the chip industry this year but Haas said Arm was able to secure enough supply to make the $2 billion worth of AGI CPUs, which use a speedy form of dynamic random access memory (DRAM).
Prior to this year, Arm sold its designs, but in March it announced that it was getting into the complete chip business and had $1 billion worth of orders for the AGI CPU at launch.
Unlike chipmakers that manufacture semiconductors, Arm Holdings licenses its processor architecture and earns royalties on chips shipped using its technology, making licensing fees and royalty payments the company's primary sources of revenue.
Arm said its server-chip architecture accounted for more than 50% of deployments at major cloud providers in 2025 and is expected to exceed 60% by the end of 2026.
Arm is able to take market share from x86-based designs made by Intel and Advanced Micro Devices in standard CPU server racks that companies such as Oracle use in their data centers, Haas said.
Arm-based designs are also capturing more of the market because CPUs are needed inside AI chip servers to help manage data flow and a larger number of those are turning to designs based on Arm tech, the CEO said.
Google has begun using its Arm-based Axion chips in its tensor processing unit (TPU) AI systems.
Revenue from royalties, which Arm collects on each chip shipped using its technology, rose 8% to $670 million for the second quarter, compared with estimates of $720.8 million.
Licensing revenue, which includes upfront fees for access to its technology, was $773 million, compared with estimates of $625.1 million.
The company's second-quarter revenue of $1.44 billion beat analysts' average estimate of $1.38 billion, according to data compiled by LSEG.
Arm's adjusted profit of 52 cents per share surpassed estimates of 47 cents per share.
The company projected third-quarter revenue of $1.54 billion, compared with the average analyst estimate of $1.53 billion.
Last month, a Delaware jury found Arm breached parts of its licensing agreement with Qualcomm and interfered with the latter's relationship with Meta, but awarded only $2 in damages, leaving key disputes over royalties and future licensing terms to be decided by a judge.
(Reporting by Max A. Cherney in San Francisco and Prathik Jayaprakash in Bengaluru; Editing by Leroy Leo)
