Arm 2025 Q4 and FY Financials

Strongest Results Ever, But Limited Visibility

Closing out their 2025 fiscal year, the staff of Arm is undoubtedly in a celebratory mood this afternoon, as the company is setting multiple earnings records as part of its latest earnings report. With $1.24b in revenue for Q4’FY25 and $4.0b for the full year, Arm has grown by leaps and bounds over the last few years, leading to the chip IP provider having for the first time crossed – and indeed, blown past – the billion-dollar mark for quarterly revenue. As a result, ARM 0.00%↑ has closed out on a solidly profitable quarter and year for the company.

While the IP business is more insulted from immediate market swings – and thus more consistent than what the hardware vendors themselves can see – Arm has nonetheless been pushing hard to expand its own revenue generating opportunities over the past couple of years. And with record licensing and royalty revenues for the most recent quarter, those efforts are paying off. Coupled with the higher margins afforded by pre-assembled Compute Subsystems (CSS) IP blocks, and Arm v9 architecture royalty revenue has for the first time passed Arm v7 (& older) royalties, only a few years after Arm v9 was first introduced.

Arm has also been a significant beneficiary from the AI boom, of course. While the company does not provide high-end AI accelerators of its own, the company is providing the architecture used by many of the CPUs driving AI systems – most famously NVIDIA’s Grace CPUs which partner in the Grace Blackwell systems (which last quarter accounted for $11b of NVIDIA’s revenue). As a result, Arm has found itself in the lucrative position of selling important IP to the pickaxe maker itself – or perhaps it would be more appropriate to say they’ve found their niche in the AI space in selling the pickaxe handles.

Key Takeaways (GAAP)

💵 Q4 Revenue, $1.24b, up 34% YoY from $928m and up 26% QoQ
📈 Q4 Gross Margin at 97.7%, up 2.1pp YoY and up 0.5pp QoQ
💰 Q4 Net Income of $210m, down 6% YoY from $224m and down 17% QoQ
🪙 Q4 EPS $0.20, down 5% YoY, down 17% QoQ

💵 FY25 Revenue, $4.01b, up 24% YoY from $3.23b
📈 FY25 Gross Margin at 97%, up 1.8pp YoY
💰 FY25 Net Income of $792m, up 158% YoY from $306m
🪙 FY25 EPS $0.75, up 158% YoY

Highlights

💵 Record Quarterly Total Revenue, Royalty Revenue, and Licensing Revenue
💵 Record Yearly Revenue
📈 Headcount: 8,330, Up 17% YoY

Financial Overview

For the fourth quarter of their 2025 financial year, Arm booked $1.24b in revenue. This was a 34% increase year-over-year, and along with setting a new record for the company – beating out their previous revenue record back in Q3 – it marks the first time that quarterly revenue has exceeded $1 billion.

Because of the pure play nature of Arm’s IP business, virtually all of the company’s gross income is profit, and Q4’25 is no exception. For the quarter Arm recorded a GAAP gross margin of 97.7%, a 2.1pp increase over Q4’24. Meanwhile, even after the significant operating expenses of running an IP provider – including $546m in R&D – the company still closed out the quarter with improved operating margins as well. Compared to the year-ago quarter, Arm’s operating margin increased to 33.0%, for a total operating income of $410m.

Amid a strong quarter for revenue, however, Arm’s net income ended up being a laggard. While the company booked 34% more revenue, net income actually dropped by 6% year-over-year, amounting to $210m. Diving into Arm’s financial statements, the most unusual cost weighing down Arm’s profitability is a one-off $290m loss from equity investments. From the company’s shareholder letter and prepared statements, it’s not clear at this time what exactly Arm lost the money on. But with most other quarters having equity investment gains and losses a fraction of this size, it had a major impact on Arm’s profitability, eating up more than half of its operating income. Though it’s also a feather in Arm’s cap that the company was still able to book over $200m in profits despite the investment losses.

Update: We’ve reached out to Arm for additional information on this and will update when we know.

Update 2: Arm tells us this one-off $290m loss is related to its investment in Ampere Computing, which is being purchased by Softbank. Arm had an 8% investment, which given the $6.5 billion price tag paid by Softbank, would be approximately a net gain of $520m. Given it’s a loss, an interpretation would be that Arm overvalued its investment, hence the writedown. Arm also attributes this number to the share price of its investment in Raspberry Pi Holdings Inc ($RPI).

Overall, Arm’s Q4 performance was right on the mark in terms of their earlier guidance. $1.24b in revenue was at the upper-end of Arm’s guidance range, as was the $0.55 in non-GAAP EPS.

And since this is the end of Arm’s fiscal year, we also have their full-year results as well. For the complete 2025 fiscal year, Arm booked $4.0b in revenue, marking the first time the company has booked $4b or more in revenue for a year. The full year gross margins were similar to the most recent quarter, with Arm recording a 97% GM and booking a net income of $792m. With operating expenses nearly flat while revenue was significantly up, Arm’s net income for the year spiked significantly, jumping by 158% year-over-year to $792m.

Finally, taking a quick look at Arm’s headcount, the company has maintained its significant year-over-year headcount growth. Over the last year Arm has added another 1,234 employees, a 17% increase that brings them to a total of 8,330. Most of these were engineers.

Licensing and Other Revenue

💵 Q4 Revenue $634m, up 53% YoY
💵 FY Revenue $1.84b, up 29% YoY

With Arm breaking down its revenues into two groups, licensing and royalties, we’ll once again start with the more volatile of Arm’s two business categories. As it’s not directly tied to hardware shipments or other client hardware success, it varies quite a bit based on when companies sign new or updated license agreements.

Overall, licensing revenue was up a staggering 53% YoY for Arm, with the company collecting $634m in revenues. This is one of several records the company has set in the most recent quarter, and it marks the first time in a few quarters that licensing revenue has surpassed royalty revenue.

Arm is attributing the blockbuster licensing revenue to a combination of normal fluctuations in timing and a couple of high-profile deals the company has signed – in essence benefitting from this segment’s volatility while also securing some new customers. Most notably, Arm has signed a “large multi-year” agreement with the Malaysian Government, who is developing their own Arm-based AI ecosystem. The near CSS licensing deal allows local startups to have access to Arm v9 IP, with the Malaysian Government undertaking it to help accelerate chip design in a region more commonly associated with die sort and testing.

Looking at Arm’s license sales altogether, Arm is reporting that they’ve sold 4 new Arm Total Access licenses for the quarter, bringing the total to its all-encompassing license plan to 44 active (extent) clients. Meanwhile the company has sold a further 19 of their R&D-focused Arm Flexible Access licenses, bringing that total to 314.

Otherwise, looking at Arm’s licensing revenue over the full year – and thus averaging out quite a bit of the volatility – Arm reports that full-year licensing revenue was still up by 29% YoY, bringing the full-year revenue to $1.84b. Along with existing licensees, this covers revenues from 13 new Arm Total Access licensees, and 92 new Arm Flexible Access licensees.

Royalty Revenue

💵 Q1’25 Revenue $607m, up 18% YoY
💵 FY’25 Revenue $2.17b, up 20% YoY

Arm’s second major revenue category – and in most quarters, the larger of the two – is Arm’s royalty revenue. Directly tied to the success of clients’ chips and the volumes shipped thereof, Arm’s business model thrives on royalties, especially as the long-term nature of these agreements means that Arm can still collect significant revenues for IP designs 10+ years old.

For the final quarter of Arm’s 2025 financial year, Arm recorded $607m in royalty revenues. This was up 18% from the year-ago quarter, when Arm booked $580m in revenue. Consequently, it’s also another record in royalty revenues for the company, as Q3 set the previous quarterly royalty record.

As has been the case for the last several quarters, Arm is attributing the bulk of the growth in royalty revenues to four major areas. First has been the increased adoption of the Arm v9, which fetches higher royalties per unit than old architectures.

In fact, for the first time ever, Arm v9 royalty revenues have now surpassed the revenues for Arm v7 & earlier architectures. For Q4, Arm v9 was 31% of the royalties collected by Arm, whereas Arm v7 has dropped to just a quarter of all royalties at 25%. With Arm v7 royalties on the decline, the bulk of Arm’s royalty revenues are now solidly due to Arm v8 and later. And while it’s still going to be some time until Arm v9 overtakes Armv8 as well, revenues there are continuing to chip away at their predecessor. Arm has previously stated that they expect Arm v9 royalties to eventually top out at around 67-70% over time.

The second major contributor to Arm’s royalty growth has been the sales of the company’s Compute Subsystems (CSS), pre-assembled IP blocks that include not only Arm CPU cores but other bits of IP, allowing companies to skip that part of the integration process and bring products to market sooner. CSS designs feature more Arm IP, and in line with the additional work Arm does in assembling them, they fetch higher margins per chip than just licensing Arm’s CPU cores or other IP. Arm has 13 CSS licensees thus far, with 6 of those being for client chips, 6 for infrastructure/server chips, and 1 unnamed EV automotive manufacturer – Arm’s first CSS for Automotive customer, which was signed in Q4.

Underscoring the much greater revenues fetched by CSS licenses, Arm has noted that while smartphone unit shipments are growing by sub-2% YoY, Arm’s royalty revenue from smartphones grew at around 30% YoY. Thus, even in a largely mature market, Arm has been able to claim a larger piece of the revenue pie thanks to CSS, and ultimately by providing a larger share of the chip IP. In fact, Arm is citing smartphones in particular as the biggest driver of royalty revenue increases for the most recent quarter.

The third major contributor, as always, has been the continued growth of Arm CPU usage in the data center space. This goes for both general servers, and in AI systems. In the case of the latter, Arm doesn’t have a high-performance accelerator IP of its own; but because CPUs are still needed to drive AI-focused systems (e.g. Grace + Blackwell), AI system sales still drive the sale of Arm-based chips, all of which pays out as royalties for Arm. All told, Arm is thinking that up to 50% of all new server chips shipped to top hyperscalers this year will be Arm-based.

Finally, for its fourth and final contributor, Arm is attributing some of its royalty success to IoT. The company isn’t offering much in the way of details here, but the company recently launched a new v9 CPU design (Cortex-A320) and a new NPU design (Ethos-U85) to serve the IoT and edge AI markets. Arm highlights that A320 is the first A-series core designed specifically for IoT, whereas in the past the market repurposed smartphone cores for that role

Otherwise, digging through Arm’s slide deck and other materials, it’s interesting to note that Arm is claiming that they’ve further gained in chip revenue share over their competitors – in particular x86. In previous estimates, Arm believed that they overtook x86 chips in revenue share as far back as their 2022 fiscal year, but for FY25, that lead has further increased to its largest yet. By Arm’s reckoning, Arm architecture chip sales are now 49% of all CPU revenue, versus 39% for x86. The bulk of this we assume is smartphone, but a breakdown of how Arm calculates these numbers would be interesting to see.

Speaking of Arm’s fiscal year, their full-year royalty revenue results are equally as impressive. The company booked $2.17b in royalty revenues – yet another record for the company – which is a 20% YoY increase.

Outlook, Q1 2026

Outlook is as follows:

💵 Q1’26 Revenue, $1.05b, +/- $50m
📈 Q1’26 EPS, $0.34, +/- $0.04

Rounding out Arm’s final earnings report of FY2025, we have their guidance for the first quarter of FY2026. Notably and right off the bat here, unlike previous quarters, Arm is not providing any full-year guidance at this time. Citing macroeconomic uncertainty (read: tariffs), the company is only providing guidance for the immediate upcoming quarter.

Overall, while Q4’25 was a fantastic quarter for Arm, the company’s projections for Q1’26 are much less explosive. While Arm is still projecting year-over-year revenue growth at $1.05b, +/- $50m, the company’s revenue growth projections are noticeably slower than the 20%+ growth Arm saw in 2025. At that midpoint estimate, $1.05b would mean that Arm’s Q1 revenues will have grown by just 12% YoY.

More significant, unfortunately, is that Arm is expecting their profitability to roll backwards for Q1. Whereas the company earned $0.40 on a non-GAAP basis for Q1’25, the company’s midpoint estimate for Q1’26 is just $0.34 per share. And even if they were to come in at the high-end of their outlook range at $0.38, that would still be a 5% drop in non-GAAP EPS.

According to Arm, their fiscal year Q1 (calendar year Q2) is traditionally their slowest quarter of the year. Still, the company isn’t providing much commentary on what’s driving their more conservative Q1 estimate beyond the high-level macroeconomic factors. But whatever the reason, investors seem nonplussed about it – as of this writing, Arm’s stock is down 11% after hours. ARM 0.00%↑

Past this, the nature of Arm’s business as an IP provider – and a broad one, at that – means that there is no one product or IP release that is going to immediately and uniquely drive sales for the company in the next quarter. That means that Arm’s growth is going to be fueled by an amalgamation of many of the same factors that drove Q3 growth: data center chip royalties, expanding use of Arm CSS, and other higher royalty uses of Arm’s IP.

Key Takeaways

• 📈 $1.24B Q4 revenue as Arm hits its first billion-dollar quarter

• 💰 FY25 net income up 158% YoY despite $290M investment hit

• 🤖 AI demand surges as Arm CPUs power next-gen systems

• 📦 v9 royalties overtake v7 for the first time, led by CSS growth

• 🌏 Malaysia signs on with a major sovereign licensing deal

• 🧠 CSS adoption accelerates with higher margins and deeper integration

Beyond the paywall we have a transcription of the Financial Analyst Q&A held after the prepared remarks.

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