Arm, the leader in smartphone chip design, is celebrating a significant rise in royalty revenues thanks to the popularity of its Armv9 architecture. Despite this growth, enthusiasm from executives is heavily geared towards future AI opportunities. The firm reported $844 million in revenue for Q2 2025, a figure that was slightly down quarter-to-quarter yet marked a 5% improvement over the previous year.

This decline was expected due to the timing of licensing revenue, as noted by CFO Jason Child. Following the news, Arm’s shares experienced a 5% drop, highlighting market sensitivities. The main highlight for the quarter was an impressive 23% year-on-year increase in royalty revenues, reaching $514 million. This surge is attributed to the rising adoption of Armv9-based processors and its innovative Compute Subsystem (CSS) designs.

Interestingly, the smartphones powered by Armv9 have outpaced handset sales growth, with a reported 40% increase in royalties compared to single-digit growth in sales. However, licensing revenues saw a downturn of 15% to $330 million, though this was not as severe as initially predicted.

CEO Rene Haas emphasized Arm’s aggressive focus on capitalizing on AI across multiple sectors, from data centers to consumer gadgets. During an investor call, Haas reiterated the potential of AI not only for training but for inference across various technological verticals. This strong licensing demand is seen as a promising indicator for future royalty income.

Amid these developments, Arm anticipates their upcoming revenue to rebound, forecasting Q3 earnings between $920 million and $970 million. The firm projects a robust full-year growth of up to 27%, powered by the continuous uptick in Armv9 chip use and strategic efforts to penetrate cloud and automotive markets.

While optimism is high, challenges remain, particularly with its legal disputes with major licensee Qualcomm, which could impact revenue if unresolved. Nevertheless, Arm remains confident, expecting smartphone chips, cloud, and automotive advancements to further drive revenue gains into 2025.