Arm reported first-quarter results with $1.06 billion in revenue and $0.35 non-GAAP EPS, meeting guidance. Next-quarter guidance of $0.33 non-GAAP EPS was below consensus, causing shares to drop 7% in aftermarket trading. Royalty revenue increased by 25% while licensing revenue remained flat, resulting in 12.1% total revenue growth.

Arm’s weaker next-quarter EPS guidance is due to higher operating expenses from investments in next-gen technology. Despite this, the company’s total fiscal 2026 revenue is forecasted to reach $4.74 billion, an 18% year-over-year increase. However, Morningstar maintains a $80 fair value estimate for Arm, considering the shares to be highly overvalued.

Arm’s narrative has shifted from strong to mixed, with continued traction in CSS, which has higher royalty rates. However, some major customers like Nvidia, Apple, and Qualcomm are moving towards designing custom cores based on Arm’s architecture. This shift leads to lower royalty rates for the companies and poses challenges for Arm’s off-the-shelf licensing model.

Read more at Morningstar: ARM Earnings Meet Guidance But Narrative is Shifting