Arm enters Q1 earnings with $2B in booked AI CPU demand

Arm Holdings reports Q1 earnings Wednesday with $2 billion in booked AGI CPU demand, after its stock fell 28% over the past month.

"We have more than $2 billion of customer demand across fiscal 2027 and fiscal 2028 for the Arm AGI CPU," Chief Executive Officer Rene Haas said on the Q4 earnings call, adding that the figure had doubled from the level announced six weeks earlier.

Meta is the lead co-developer, with OpenAI, Cerebras, SAP and Cloudflare also integrating the chip. The data center CPU total addressable market is expected to exceed $100 billion by 2030, and Arm already holds roughly 50% CPU compute share among top hyperscalers. Data center royalty more than doubled year-over-year in FY2026 and is expected to double again in FY2027.

The earnings come as Arm's stock trades at $254.50, down from a recent high near $360, with 27 buy ratings and 2 sells giving an average price target of $300.73 — implying about 18% upside. A miss or cautious guidance could deepen the selloff in a stock that already commands a premium valuation relative to peers.

Nvidia's Vera Adds a Royalty Tailwind

Every rack of Nvidia's next-generation Vera processor, which is Arm-based, generates a royalty for the company. That gives Arm exposure to the AI infrastructure buildout without the capital intensity of chip manufacturing. Nvidia already trades at a premium valuation, meaning a marginal dollar of AI infrastructure spend has more impact on Arm's $277.71 billion market cap than on larger peers.

Financial Momentum Before the Print

Arm's FY2026 free cash flow reached $882 million, up 395.51% year-over-year, with operating cash flow of $1.524 billion and gross margin of 92.48%. Revenue grew 22.79% to $4.92 billion, marking the third consecutive year of 20%-plus growth. Annual contract value climbed 22% to $1.66 billion, providing forward visibility on the licensing base before royalties compound.

The Q1 report will test whether Arm can sustain its growth trajectory as the broader chip sector faces questions about AI spending sustainability. The stock's 28% decline over the past month has already priced in some disappointment, but the premium valuation — compared with Qualcomm's 55.4% gross margin and declining revenue — leaves little room for error. Investors will watch for updated AGI CPU booking numbers, data center royalty growth rates, and any changes to full-year guidance.

This article is for informational purposes only and does not constitute investment advice.