Arm beats on Q4 but stumbles on AGI CPU supply as $2bn data center orders pile up

Arm Holdings beat Wall Street estimates for the fourth quarter of fiscal 2026 on Wednesday. The shares then gave back the gains in after-hours trade after executives said they had locked in chip supply for only the first $1bn of customer demand for the company's new data center processor.

Arm reported adjusted earnings of 60 cents per share on revenue of $1.49bn. Consensus had been 58 cents and $1.47bn. Licensing revenue was $819m, up 29 per cent year-on-year. Royalty revenue was $671m, up 11 per cent.

The stock initially climbed as much as 13 per cent in extended trade. Sentiment turned on the conference call when chief executive Rene Haas and chief financial officer Jason Child described the order book for the Arm AGI CPU. The chip is the company's first internally designed silicon for the data center.

Customer demand for it has more than doubled since launch. Total commitments across fiscal 2027 and fiscal 2028 now exceed $2bn, Arm said in its quarterly letter. At the March product announcement that figure was $1bn. Arm has supply for the first half of the new total. The rest sits as orders Arm cannot yet promise to fill.

"As AI becomes more agentic, demand for Arm AGI CPU, Arm's first data center chip, has exceeded expectations," Haas said in the earnings statement. He cast the supply gap as proof the chip had landed in a real shift, rather than as a stumble.

Arm is pitching the AGI CPU as a substitute for x86 server chips from Intel and AMD. Arm says the design delivers more than twice the rack performance of x86. It says the chip can cut data center capital spending by up to $10bn per gigawatt. Meta is the lead partner and co-developer.

What changed at the launch

The AGI CPU was unveiled at the Arm Everywhere event on March 24. Configurations top out at 136 Neoverse V3 cores per CPU. Memory bandwidth runs at 6GB per second per core. Arm has cited 8,160 cores per air-cooled rack and more than 45,000 per liquid-cooled rack, all inside a 300-watt thermal envelope.

The roster of named customers is unusual for a first-generation chip. Cerebras, Cloudflare, F5, OpenAI, Positron, Rebellions, SAP and SK Telecom sit in the announced commercial pipeline. ASRock Rack, Lenovo, Quanta Computer and Supermicro are the lead system builders. The wider ecosystem support list runs across AWS, Broadcom, Google, Marvell, Micron, Microsoft, Nvidia, Samsung, SK Hynix and TSMC.

After-hours traders looked past the order book to the next problem. Arm has to convert the demand signal into shipped silicon. Foundry capacity for 3-nanometre and 2-nanometre nodes is already tight across hyperscaler customers. Arm's extra volume goes to the back of that queue.

Where the royalty story stands

The rest of the report tracks the trend Arm has been reporting for two years. Data center royalty revenue more than doubled year-on-year in the fourth quarter. Arm has previously said its share among the top hyperscalers will reach roughly 50 per cent. Neoverse core deployments passed the one-billion mark in the third quarter, alongside the Asia memory boom that has lifted Samsung past $1tn in market value.

Royalty mix matters because licensing revenue is uneven. A few large multi-year licences can dominate a single quarter. Royalties scale with chip shipments. Arm's third-quarter royalty growth was 27 per cent. The fourth-quarter figure was 11 per cent. Management attributed the gap to a shipment timing comparison rather than a weaker end market.

Arm guided to first-quarter fiscal 2027 revenue of about $1.26bn, slightly above analyst estimates. Full-year guidance was not provided in detail. Haas repeated the target of a $15bn data center business. He said the data center segment would soon overtake smartphones inside Arm's revenue mix.

Why the stock dropped

Supply is the obvious answer. It is not the whole answer. Arm trades on a forward earnings multiple well above the broader semiconductor index. Investors had priced in faster monetisation of the AGI CPU than the company can now deliver. Demand Arm cannot ship in fiscal 2027 arrives later. By then competing AI server chips from AMD, Nvidia and the hyperscalers' in-house teams will also be on offer.

Contracting is the other thread. Arm has signed long-duration royalty agreements at higher per-chip rates, replacing older Armv8-era deals. Those contracts only convert to revenue once chips ship. Capacity delays push the conversion curve to the right.

The rest of the call was about pacing. Child told analysts the company was working to add manufacturing supply. He did not name a foundry. He did not commit to a quarter for the extra volume. Investors read the silence as confirmation the gap will not close inside fiscal 2027.

Arm management calls the next phase agentic inference. In that view, CPUs go back to the centre of data center architecture instead of sitting beside accelerators. The AGI CPU bet rests on that view. The fourth-quarter print and the $2bn order book say customers agree. The next quarter has to show whether Arm can build them.