EPS of $0.12 decreased by 42.9% from previous year
Gross margin of 97.2%
Net income of 130.00M
""Q1 was our highest revenue quarter -- second highest revenue quarter at $1.05 billion. Royalty revenue reached $585 million, up 25% year-on-year."" - Rene Anthony Andrada Haas
Arm Holdings plc (ARM) Q1 2026 Financial Results: Strong Growth Driven by AI Demand
Executive Summary
In Q1 2026, Arm Holdings plc achieved a remarkable revenue of $1.05 billion, marking a year-on-year increase of 12.14%, driven predominantly by escalating demand for AI compute across various markets. The company reported a net income of $130 million, reflecting a net income ratio of 12.34%. This robust performance aligns with management's expectation, evidenced by a 25% year-on-year growth in royalty revenue, which reached a record $585 million. Management emphasized their strategic positioning to capture AI opportunities in both cloud and edge devices, particularly highlighting their ability to cater to significant customers such as NVIDIA and AWS. Looking ahead, management remains optimistic, forecasting revenue growth of 25% year-on-year for Q2 2026 based on robust licensing pipeline and customer demand.
Balance Sheet Health:
- Total Assets: $9.395 billion
- Total Liabilities: $2.388 billion
- Total Stockholders' Equity: $7.007 billion
- Cash and Short-Term Investments: $2.906 billion
Cash Flow Metrics:
- Free Cash Flow: $171 million
- Net Cash Provided by Operating Activities: $332 million
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.05B
12.14%
-15.15%
Gross Profit
1.02B
15.66%
-13.93%
Operating Income
114.00M
-37.36%
-72.20%
Net Income
130.00M
-41.70%
-38.10%
EPS
0.12
-42.86%
-39.70%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
1. AI Compute Demand: CEO Rene Haas noted, "AI workloads are being deployed everywhere... driving unprecedented demand for compute that’s not only performant, but also energy efficient."
2. Royalty Revenue Increase: CFO Jason Child stated, "Royalty revenue grew 25% year-on-year to a Q1 record of $585 million," signifying strong market traction across smartphone, data center and automotive sectors.
"Q1 was our highest revenue quarter -- second highest revenue quarter at $1.05 billion. Royalty revenue reached $585 million, up 25% year-on-year."
— Rene Anthony Andrada Haas
"We have high confidence in healthy growth in the coming year and in years to come. We expect to continue pressing our advantage by investing aggressively in R&D to support our customers and partners."
— Jason E. Child
Forward Guidance
Management provided an optimistic outlook, projecting Q2 2026 revenue between $1.01 billion and $1.11 billion, a year-on-year growth of about 25%. They plan to continue accelerating investments in R&D to capitalize on the booming AI sector, guided by a strong pipeline of customer design projects and contracted royalty rates. Key areas to monitor include developments in the custom silicon market and ongoing adaptations in the licensing structure.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ARM Focus
97.15%
N/A
N/A
N/A
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Arm Holdings plc represents an interesting investment opportunity within the technology sector, particularly for investors looking to gain exposure to the high-growth areas of AI and semiconductor industry. Despite recent performance challenges reflected in declining net income and fluctuating revenue trends, the company's strong cash position and management's commitment to R&D investment position Arm favorably for potential future growth. The forecasted increase in revenue coupled with expanding market share reinforces a positive outlook for long-term investors.
Key Investment Factors
Growth Potential
Arm's robust growth potential is bolstered by the increasing demand for AI and custom chips, particularly in diverse markets like automotive, data center, and IoT. Management anticipates a market share of nearly 50% in AI-driven hyperscalers by year-end 2026.
Profitability Risk
Main risks include fluctuations in global semiconductor demand, competitive pressures from other semiconductor providers, and potential supply chain disruptions. Additionally, ongoing regulatory influences in China can also affect revenue streams.
Financial Position
With total assets exceeding $9 billion and a strong cash position of approximately $2.9 billion, Arm is well-positioned to navigate potential financial challenges. Its low debt levels and high equity ratios provide a buffer for future investments and growth.
SWOT Analysis
Strengths
Leading position in AI compute performance and efficiency.
Strong royalty revenue growth relative to competitors. Supported by a mature ecosystem of over 22 million developers.
Robust cash position and low debt levels, allowing flexibility for strategic investments.
Weaknesses
Recent decline in net income due to high R&D expenses as a percentage of revenue.
Dependence on few key clients for a significant portion of revenue.
Opportunities
Expanding AI and machine learning workloads offer significant growth potential.
Increasing adoption of Arm architecture in emerging markets like automotive and Internet of Things.
Threats
Intense competition from established semiconductor players like Intel and AMD.
Geopolitical risks affecting international operations, particularly in China.