Shares of Arm Holdings (ARM) dropped 7% in extended trading following the semiconductor company’s Q1 2026 earnings release. The decline reflects investor reaction to the company’s guidance for the current quarter, or the lack of it. Arm posted mixed results for the first quarter of its fiscal year 2026. The semiconductor design company reported a record revenue for Q1 of $1.05 billion, although just shy of the $1.06 billion average analyst estimate. Adjusted earnings per share came in at $0.35, matching forecasts.
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Royalty revenue rose 25% year-over-year to $585 million, driven by broader adoption of the company’s Armv9 architecture and growth in data center chip deployments. Licensing revenue, however, declined 1% to $468 million. Despite the drop, ARM shares are up 32% year-to-date.
Rising Capex
Chief Executive Officer Rene Haas said the company is increasing investment in research and development to support future growth, especially in artificial intelligence. Arm is also expanding into custom chip and chiplet development. This shift marks a change from its traditional licensing model.
The company is a key supplier of chip architecture for smartphones, where it holds a 99% market share. It also supplies designs for cloud data centers and Internet of Things devices (IoT). The company said over 70,000 enterprises are now running data center workloads on Arm-based chips.
New agreements during the quarter included three additional licenses for Arm Compute Subsystems. These included two deals for data center chips and one for PC chips. Major customers like Nvidia (NVDA), Microsoft (MSFT), and Google (GOOG) have begun deploying thousands of Arm-based AI superchips. The company’s outlook follows cautious guidance from peers, including Intel (INTC) and Texas Instruments (TXN), as investors remain focused on trade risks and signs of weakness in consumer electronics.
What Is the Price Target of ARM Stock?
Following the earnings call, two analysts reiterated Buy ratings. Top analyst Vijay Rakesh of Mizuho set a $180 price target, while five-star analyst Krish Sankar of TD Cowen raised his target from $155 to $175. Overall, analyst sentiment remains positive, with a Moderate Buy consensus rating. The average ARM stock price target is $163.59, pointing to a 0.16% upside from the current price.
