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Arm Holdings (ARM) has bounced back nicely after reporting its Q3 (Dec) results last night. The company beat expectations on the top and bottom line, with revenue increasing 26.3% yr/yr to $1.24 bln. Q4 guidance was just in line with expectations, however, expecting EPS of $0.54-0.62 and revenue of $1.42-1.52 bln.

• Growth continues to be supported by mobile strength and Cloud AI momentum, as inference and always-on workloads drive hyperscalers toward higher core-count, power-efficient Arm CPUs.
• Royalty revenue increased 27% yr/yr to a record $737 mln, with the biggest growth contributors coming from smartphones (higher royalty rates per chip) and the data center.
• On mobile, all major Android OEMs are now ramping Armv9 and CSS-based chips, keeping edge AI royalties growing much faster than the broader market.
• In the data center, royalty revenue continues to double yr/yr as major hyperscalers ramp ARM-based CPUs, with an added tailwind from AI data-center buildouts driving more networking silicon (DPUs and SmartNICs) where ARM has high share.
• Licensing revenue was $505 mln, up 25% yr/yr, driven by demand for next-gen architectures and high-value customer wins, including two new Arm Total Access agreements and two CSS licenses. ACV rose 28% yr/yr.
• Non-GAAP operating margin fell 430 bps yr/yr, reflecting aggressive spending on engineering, next-generation architectures, and platform expansion.
• On rising memory costs and supply constraints, Arm said its outlook aligns with broader expectations for smartphone unit volume declines, but OEMs are prioritizing the high end of the market where Armv9 and CSS carry the highest royalties. As a result, management said even a 20% unit decline would likely mean only a 2-4% hit to smartphone royalties and about a 1-2% hit to total royalties, with Cloud AI and infrastructure strength helping offset the pressure.

Briefing.com Analyst Insight

ARM has bounced back nicely from its earlier losses, and the quarter itself was strong with record royalty revenue and a fourth consecutive quarter above $1 bln. Data center stood out, with royalties still growing at a triple-digit pace, and ARM expects it to grow to rival and potentially surpass mobile as its largest business over the next two to three years. That said, the bar was high, and in-line guidance along with higher R&D investment and related margin pressure likely tempered the initial reaction, with investors also sensitive to near-term handset risk. Those concerns align with Qualcomm's (QCOM) recent comments that rising memory demand from AI data centers is tightening supply and lifting pricing, prompting some OEMs to scale back build plans and chipset orders. Overall, the quarter was solid and ARM looks well positioned as the data center opportunity scales, though near-term volatility around increased investment and handset uncertainty is likely.