Arm Holdings delivered exceptional Q1 2025 results, with revenue growing 39% year-over-year to $939 million, marking the company’s fourth consecutive quarter of record performance.
Summary
Arm’s Q1 performance was driven by robust licensing revenue growth of 72% year-over-year and royalty revenue growth of 17%. The company’s CEO, Rene Haas, emphasized the strong demand for Arm’s technology across various sectors:
“We are seeing AI everywhere, which is driving demand for Arm’s performance and power-efficient compute platform.”
Main Themes
- Guidance: Reiterated full-year revenue guidance of $3.8 billion to $4.1 billion, representing 18% to 27% year-over-year growth
- AI Focus: Increased demand for Arm’s technology in AI applications across cloud, edge, and mobile devices
- v9 Adoption: Accelerating transition to Armv9 architecture, driving higher royalty rates
- Compute Subsystems: Growing traction in major markets including mobile, laptop, cloud, and automotive
- Market Expansion: Significant growth in cloud compute and automotive sectors
Insights
- Arm’s smartphone royalty revenue grew over 50% year-over-year, significantly outpacing the mid-single-digit unit growth
- Cloud compute market saw the strongest growth ever at over 75% year-on-year
- Compute Subsystems (CSS) engagements are active across major markets, with mobile CSS expected to contribute materially starting next fiscal year
Market Opportunity
Arm is capitalizing on the growing demand for AI-capable devices across various sectors. The company’s technology is being adopted in new markets such as AI data centers, automotive ADAS systems, and AI-enabled PCs. Arm’s CEO projects that the company could capture up to 50% of the PC market share within five years, driven by the transition to Arm-based Windows PCs.
Market Commentary
The AI data center market is experiencing rapid growth, with custom chip designs becoming increasingly prevalent. Arm’s architecture is well-positioned to benefit from this trend due to its power efficiency and customization capabilities. The company expects the adoption of its Grace Blackwell chip, in partnership with NVIDIA, to drive significant volume in AI data centers.
Customer Behaviors
Customers across various sectors are increasingly investing in Arm’s technology to address AI workloads. This trend is driving demand for more compute capability, additional CPU cores, and advanced subsystems. The company is seeing strong traction in licensing activities, particularly for AI-focused designs.
Key Metrics
Financial Metrics:
- Q1 Revenue: $939 million (39% YoY growth)
- Licensing Revenue: 72% YoY growth
- Royalty Revenue: 17% YoY growth
- Non-GAAP Operating Margin: 48%
KPIs:
- Annualized Contract Value (ACV): 14% YoY growth
- Remaining Performance Obligations (RPO): 29% YoY growth
- v9 Adoption: 25% of total royalty revenue (up from 20% in previous quarter)
- Smartphone v9 Adoption: ~50% of royalty revenue
“We expect Q2 to be one of our highest bookings quarters of the years.” – Jason Child, CFO
Competitive Differentiators
- Largest software ecosystem with over 20 million developers
- Power-efficient architecture ideal for AI workloads
- Customization capabilities for AI data centers
- Strong presence in mobile and expanding in PC, cloud, and automotive markets
- Compute Subsystems offering for major markets
Key Risks
- Persistent weakness in IoT and networking equipment markets
- Potential delays in v9 adoption outside of mobile sector
- Competition from established players in the PC and data center markets
- Dependence on the smartphone market for a significant portion of royalty revenue
- Geopolitical risks associated with operations in China through Arm China
Analyst Q&A Focus Areas
- Timeline for licensing revenue conversion to royalty revenue
- Sustainability of licensing growth amid industry corrections
- Expectations for v9 adoption and Compute Subsystems ramp-up
- Potential for market share gains in the PC sector
- Growth prospects in the AI accelerator market
Arm Holdings Summary:
Arm Holdings is well-positioned to capitalize on the growing demand for AI-capable devices across various sectors. The company’s strong performance in mobile, cloud, and automotive markets, coupled with its expanding presence in PCs, presents significant growth opportunities. Investors should closely monitor the adoption rate of Armv9 architecture and Compute Subsystems, as well as Arm’s progress in penetrating the AI data center market. While facing some headwinds in IoT and networking segments, Arm’s overall growth trajectory remains robust, driven by its power-efficient architecture and extensive software ecosystem.
