Arm Stock Falls 7% on Q3 Licensing Miss
Recently, Arm released its financial results for the third quarter of fiscal year 2026, ending December 31, 2025. Driven by rising demand for AI chip design licenses and strong momentum in data center applications, the company delivered performance that exceeded most market expectations. However, investor sentiment turned cautious as licensing revenue fell slightly short of forecasts, leading to a 7.45% decline in after-hours trading to $97.05 per share.
According to the report, third-quarter revenue reached $1.24 billion, up 26% year on year and marking the fourth consecutive quarter above the $1 billion threshold. The figure surpassed Wall Street expectations of $1.22 billion. Adjusted earnings per share came in at $0.43, also ahead of the consensus estimate of $0.41.
Arm attributed the growth mainly to robust demand from AI servers, smartphones, and edge computing devices, which boosted both licensing and royalty income. Royalty revenue climbed 27% from a year earlier to a record $737 million, reflecting the expanding deployment of Arm-based processors across multiple end markets. Licensing revenue increased 25% to $505 million, although this was slightly below the anticipated $519.9 million.
The company's business model centers on developing advanced CPU architectures and licensing this technology to leading IC design firms such as Broadcom, Marvell, and Qualcomm for the creation of customized chips. Today, Arm technology powers around 99% of the world's smartphones, highlighting its foundational role in modern electronics.
Looking ahead, Arm offered an optimistic outlook for the fourth quarter, forecasting revenue of approximately $1.47 billion, above analyst expectations of $1.44 billion. Adjusted earnings per share are projected to reach $0.58, compared with the market estimate of $0.56. The guidance suggests that demand for high-performance and energy-efficient computing, particularly in AI-related applications, will continue to support the company's growth trajectory.
