Arm (ARM) Stock Price Sinks Despite Q2 FY2027 Earnings Beat

Arm Holdings came into this Q2 FY2027 report with a rich growth reputation and a stock that had already been under pressure over the past month. The fresh numbers delivered a clear headline: revenue of US$1.44b and non GAAP earnings per share of US$0.52, yet the share price dropped about 13% today to US$166.72.

For a chip design heavyweight often treated as a pure artificial intelligence winner, that gap between solid reported growth and a sharp one day selloff puts Arm’s valuation strain and expectations problem squarely in focus.

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Q2 2027 Earnings Summary

• Revenue (Q2 2027 vs Q2 2026): US$1,443m vs. US$1,135m (up about 27%)
• Net Income, excl. extra items (Q2 2027 vs Q2 2026): US$130m vs. US$238m (down about 45%)
• Basic EPS (Q2 2027 vs Q2 2026): US$0.12 vs. US$0.22 (fell roughly 46%)
• Trailing 12 month Revenue (Q2 2027 TTM vs Q2 2026 TTM): US$5,464m vs. US$4,412m (higher by around 24%)

Arm just doubled its AGI CPU revenue target for 2027–28. Ask Charlie what Arm’s $2B AGI CPU goal really implies.

Arm’s AI Upside Case Meets Mixed Milestones

The bullish story on Arm Holdings hinges on AI centric products turning into a much larger revenue engine, not just higher royalties.

"The main thing that has to go right is that Arm converts current AGI CPU demand and accelerating Armv9 and CSS adoption in cloud, edge and physical AI into sustained, large scale royalty and silicon sales despite higher R&D spend and supply constraints."

Q2 shows some of this playing out. License and other revenue rose strongly to US$773m, data center and physical AI royalties grew, and management now sees up to US$2b of Arm AGI CPU revenue across FY27 and FY28. At the same time, net income excluding extra items declined and basic EPS fell, which shows the higher R&D and legal friction that this expansion requires.

That disagreement has a full argument behind it. → Uncover the higher Fair Value this Narrative argues for.

Arm margins: AI promise meets earnings quality stress test

The bear worry is clear. Arm Holdings might grow AI revenue yet see weaker profitability if new products and heavy spending drag on margins.

"Heavy R&D investment that lifted non GAAP operating expenses by 18% to 37% year on year and reached roughly $734 million per quarter to support next generation architectures, subsystems and AGI CPU silicon risks outpacing the timing of associated royalty and product revenue."

This quarter cuts both ways. Non GAAP operating margin reached 44.2% and EPS of US$0.52 moved ahead of guidance, which argues against immediate margin breakdown. At the same time, non GAAP opex guidance of about US$825m for Q3 and lower AGI CPU gross margin targets keep the timing mismatch risk alive rather than resolved.

Hunt For Mispriced Growth Stories

Arm Holdings just showed how a single earnings print can rapidly shift expectations across the market. The real opportunity is finding stocks that could be undervalued before investors reassess their prospects.

• Company 1 - 23% below our estimate - expands cardiometabolic and obesity treatments while scaling manufacturing capacity and payer access for incretin therapies.
• Company 2 - 41% below our estimate - ramps next generation NAND to feed AI data center demand and push more bits into higher value enterprise SSDs.
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That is three of the list. See all 42 potentially undervalued companies →

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