Arm Earnings: Delivers Strong Performance and Extends Into AI Networking With DreamBig Acquisition

Key Morningstar Metrics for Arm

What We Thought of Arm’s Earnings

Arm ARM beat both revenue and adjusted EPS guidance in second-quarter fiscal 2026, reaching $1.14 billion and $0.39, respectively, and guided for revenue of $1.23 billion next quarter, implying an 8% sequential acceleration.

Why it matters: Performance remained strong across the board. Cloud computing and networking remain the brightest spots, with royalty revenue expected to roughly double from last year. The smartphone business also remains strong as more customers adopt v9 and compute subsystem architectures, which carry higher royalties in the 5% and 10% range, respectively.

The bottom line: We maintain our $80 fair value estimate for wide-moat Arm. We see the shares as significantly overvalued, trading at 90 times our 2026 and 73 times our 2027 adjusted EPS forecast, doubling the multiples of Nvidia, Synopsys, or Cadence.

• We model a 20% revenue compound annual growth rate over the next five years, with EPS growing in line as Arm gains market share and expands royalty rates. Despite a strong business narrative and continued earnings beats, we still fail to see an attractive risk/reward equation for investors at these levels. After meaningful expansion in valuation multiples over the last 18 months, the stock remains flat, signaling to us that there is much optimism already priced in.

Big picture: Arm highlighted once again its eagerness to capture more value across the semiconductor value chain. Buried in the latest 6-K filing, Arm announced the $265 million acquisition of DreamBig Semiconductor, a designer of AI networking technology through remote direct memory access, which enables direct GPU-to-GPU interconnection.

DreamBig’s technology is built on open networking standards and can be licensed as IP or sold as physical silicon. There is functional overlap with networking solutions from key Arm customers Marvell, Broadcom, and Nvidia. The degree of competition will depend on whether Arm chooses to commercialize DreamBig designs as full chips or IP blocks.