Financial Data and Key Metrics Changes - Revenue grew 26% year-over-year to a record $1.24 billion, marking the fourth consecutive billion-dollar quarter [5][13] - Royalties increased 27% to a record $737 million, driven by strong performance in AI and general-purpose data centers [5][13] - Non-GAAP EPS reached $0.43, reflecting higher revenue and slightly lower operating expenses than expected [16] Business Line Data and Key Metrics Changes - License revenue was $505 million, up 25% year-over-year, driven by demand for next-generation technologies [5][14] - Data center royalty revenue has more than doubled year-over-year, with expectations for it to become the largest business segment in the future [5][13] - Edge AI devices, particularly smartphones, are experiencing faster growth than the market, contributing significantly to royalty revenue [14] Market Data and Key Metrics Changes - Arm's share among top hyperscalers is expected to reach 50%, with significant deployments of Neoverse CPUs [8][9] - Major hyperscalers are launching new products with increased core counts, enhancing performance and efficiency [9][10] - The automotive market within Physical AI grew double digits year-over-year, contributing to strong royalty performance [14] Company Strategy and Development Direction - Arm has organized its business around three units: Edge AI, Physical AI, and Cloud AI, to better align with customer deployment of AI [6] - The company is focused on investing in innovation across a broad spectrum of compute technologies, including next-generation architectures and compute subsystems [5][16] - Arm aims to be the compute platform of choice for all AI workloads, leveraging its strengths in power efficiency and performance [11][91] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in future revenue growth due to strong customer demand and a growing base of long-duration contracts [17] - The company anticipates revenue growth of about 18% year-over-year for Q4, with royalties expected to rise in the low teens percentage [17] - Management acknowledged potential risks from memory supply chain constraints but indicated that growth in cloud AI is compensating for these risks [24][25] Other Important Information - Arm's compute subsystems (CSS) are gaining traction, with demand exceeding expectations and contributing significantly to royalty revenue [7][56] - The company signed two new CSS licenses during the quarter, bringing the total to 21 licenses across 12 companies [7][14] - Management highlighted the importance of CPUs in the evolving data center landscape, particularly with the shift towards agent-based AI workloads [21][22] Q&A Session Summary Question: How does Arm view its role in AI and cloud data centers? - Management noted a shift from training to inference workloads, emphasizing the suitability of CPUs for agentic AI tasks due to their power efficiency and low latency [21][22] Question: What are the implications of potential demand destruction in consumer electronics? - Management indicated that while there may be a reduction in unit volumes, the impact on royalty revenue would be minimal, primarily affecting older generation royalties [23][24] Question: Will SoftBank need to sell Arm stock to finance investments? - Management confirmed that SoftBank has no interest in selling Arm stock and remains bullish on the company's long-term prospects [30] Question: What is the expected trend for royalty revenue growth? - Management expects royalty revenue growth to be consistent, with potential impacts from memory shortages being minimal [32][70] Question: How is Arm addressing power efficiency and memory technologies? - Management highlighted ongoing research into memory technologies and the importance of power efficiency in smaller form factors [85][86]

Financial Data and Key Metrics Changes - Revenue grew 26% year-over-year to a record $1.24 billion, marking the fourth consecutive billion-dollar quarter [4][13] - Royalties increased 27% to a record $737 million, driven by strength in AI and general-purpose data centers [4][13] - License revenue was $505 million, up 25% year-over-year, reflecting strong demand for next-generation technologies [4][14] - Non-GAAP EPS reached $0.43, close to the high end of guidance, supported by higher revenue and slightly lower operating expenses [17] Business Line Data and Key Metrics Changes - Data center royalty revenue grew more than 100% year-over-year, with expectations for it to become the largest business segment [4][13] - Edge AI, which includes smartphones and IoT, continues to grow faster than the market, with all major Android OEMs ramping up production of CSS-based devices [13][14] - Physical AI, particularly in the automotive sector, saw double-digit growth year-over-year, contributing to strong royalty performance [14] Market Data and Key Metrics Changes - Arm's share among top hyperscalers is expected to reach 50%, with significant deployments of Neoverse CPUs [8] - AWS launched its fifth-generation Graviton processor with 192 cores, showcasing the trend towards higher core counts in cloud AI [8][9] - Google has migrated over 30,000 applications to the Arm instruction set, indicating a strong shift towards Arm-based solutions in cloud environments [9] Company Strategy and Development Direction - Arm has organized its business around three units: Edge AI, Physical AI, and Cloud AI, to better align with customer deployment of AI [5] - The company is focused on increasing R&D investments to support innovation in next-generation architectures and compute subsystems [17] - Arm aims to be the compute platform of choice for all AI workloads, leveraging its strengths in power efficiency and performance [11][88] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in future revenue growth due to strong customer demand and a growing base of long-duration contracts [18] - The company anticipates revenue for Q4 to be around $1.47 billion, reflecting an 18% year-over-year growth [18] - Management acknowledged potential risks from memory supply chain constraints but noted that growth in cloud AI is compensating for these risks [24][25] Other Important Information - Arm is hosting an event on March 24th, with no details provided ahead of the event [19] - The company is seeing increased demand for compute subsystems, which are expected to significantly contribute to royalty revenue in the coming years [55] Q&A Session Summary Question: Arm's role in AI and cloud data centers - Management highlighted the shift from training to inference workloads, emphasizing the suitability of CPUs for agentic AI tasks due to their power efficiency and low latency [21][22] Question: Impact of SoftBank's potential stock sales - Management confirmed that SoftBank has no interest in selling Arm stock, expressing confidence in the long-term prospects of the company [30] Question: Trends in royalty revenue growth - Management indicated that a potential 20% reduction in smartphone unit volumes could translate to a 1-2% negative impact on total royalties, but growth in cloud AI is expected to offset this [24][25] Question: Data center revenue specifics - Management stated that data center revenue is expected to grow significantly, potentially reaching similar or larger levels than the smartphone business in the next few years [41] Question: CSS adoption and its impact - Management noted that CSS is expected to account for a significant portion of royalty revenue, potentially upwards of 50% in the next few years [55] Question: R&D investment outlook - Management indicated that R&D growth may moderate relative to revenue growth in fiscal 2027, but significant investments will continue [70] Question: AI's impact on chip design - Management emphasized the ongoing need for hardware to support AI workloads, indicating that AI will not replace physical chips but will drive demand for more efficient designs [75][76] Question: Memory technologies and power efficiency - Management acknowledged the importance of exploring various memory technologies, including SRAM, to meet the demands of AI applications [82]

Core Insights - Microsoft continues to demonstrate strong performance in the technology sector, evolving from a legacy tech giant to a rapidly expanding AI and cloud powerhouse, with a current valuation of $3.05 trillion despite a 14% dip in stock price this year [1] Financial Performance - In Q2 of fiscal 2026, Microsoft reported total revenue of $81.3 billion, reflecting a 17% year-over-year increase [3] - Earnings per share rose by 24% to $4.14, indicating effective execution in cloud, AI, and productivity sectors [3] - Operating margins improved to 47%, even with substantial investments in AI infrastructure [3] - The cloud business achieved over $50 billion in quarterly revenue for the first time, growing 26% year-over-year [3] - Commercial bookings increased by 23%, with remaining performance obligations reaching $625 billion, indicating a strong backlog of future revenue [3] AI Strategy and Infrastructure - CEO Satya Nadella highlighted that Microsoft is redesigning its global infrastructure to accommodate large-scale AI workloads, adding approximately one gigawatt of data center capacity in a single quarter [4] - Investments in custom chips, such as Maya 200 and Cobalt 200, are enhancing performance while reducing total ownership costs, positioning Microsoft favorably against competitors [4] - New data center investments are being made in seven countries, along with improved solutions for various cloud types [4] AI as a Revenue Engine - Management noted that AI is already larger than some legacy businesses and is still in its early stages [5] - Microsoft's AI strategy is structured across three layers: infrastructure, agent platforms, and high-value experiences [5] - The Foundry and Fabric platforms are gaining traction, with Fabric having over 31,000 clients and generating more than $2 billion in annual run-rate revenue, marking a 60% year-over-year increase [5] - The number of customers spending over $1 million quarterly on Foundry has increased by approximately 80%, with over 250 customers expected to process more than one trillion tokens this year [5]

Core Insights - Microsoft Cloud surpassed $50 billion in revenue for the first time, indicating accelerating demand for cloud and AI products [2][4] - The company reported a fiscal Q2 revenue of $81.3 billion, with cloud revenue at $51.5 billion, and capital expenditures reaching $37.5 billion [3][11] - Microsoft is focusing on optimizing AI workloads and infrastructure, with significant investments in custom chips and data center capacity [2][4] Infrastructure and Technology - Microsoft introduced the Maia 200 accelerator, delivering over 10 petaflops at FP4 precision and over 30% improved total cost of ownership compared to previous hardware [1] - The Cobalt 200 CPU offers over 50% higher performance compared to Microsoft's first custom processor for cloud-native workloads [1] - The company added nearly 1 GW of total capacity in the last quarter and is building an "AI WAN" to enhance performance and cost efficiency [2][4] Product Adoption and Performance - Microsoft reported 15 million paid Microsoft 365 Copilot seats and 4.7 million paid GitHub Copilot subscribers, with significant growth across various sectors [3][9] - The Copilot app saw daily users increase nearly 3x year-over-year, and Microsoft 365 Copilot seat additions were up over 160% year-over-year [8][9] - In security, Microsoft added a dozen new Security Copilot agents, with Purview auditing 24 billion Copilot interactions, up 9x year-over-year [10] Financial Results - Fiscal Q2 results showed a 17% increase in revenue, with operating income up 21% and earnings per share of $4.14, up 24% [11] - Capital expenditures were primarily allocated to short-lived assets like GPUs and CPUs, with cash flow from operations increasing by 60% [12] - Commercial remaining performance obligation (RPO) rose to $625 billion, up 110% year-over-year, with 45% tied to OpenAI [15] Future Outlook - For fiscal Q3, Microsoft expects revenue between $80.65 billion and $81.75 billion, with a projected gross margin percentage of around 65% [18] - The company anticipates operating margins to be slightly down year-over-year in Q3 but expects fiscal 2026 operating margins to be up slightly due to first-half execution and mix benefits [18]

Financial Data and Key Metrics Changes - Revenue for the quarter was $81.3 billion, up 17% year-over-year and 15% in constant currency [25] - Gross margin dollars increased by 16% and operating income rose by 21% [25] - Earnings per share was $4.14, reflecting a 24% increase year-over-year [25] - Company gross margin percentage was 68%, slightly down year-over-year due to investments in AI infrastructure [26] - Operating expenses increased by 5%, driven by R&D investments [26] Business Line Data and Key Metrics Changes - Microsoft Cloud revenue reached $51.5 billion, growing 26% year-over-year [31] - Productivity and Business Processes revenue was $34.1 billion, up 16% year-over-year [31] - M365 Commercial Cloud revenue increased by 17%, with paid M365 commercial seats growing 6% to over 450 million [32] - Intelligent Cloud segment revenue was $32.9 billion, growing 29% year-over-year [33] - More Personal Computing revenue declined by 3% to $14.3 billion [36] Market Data and Key Metrics Changes - Commercial bookings increased by 230%, driven by large Azure commitments from OpenAI [30] - Commercial remaining performance obligation (RPO) increased to $625 billion, up 110% year-over-year [30] - Azure revenue grew by 39%, slightly ahead of expectations [34] - LinkedIn revenue increased by 11%, driven by marketing solutions [24] Company Strategy and Development Direction - The company is focusing on AI diffusion and its impact on GDP, with significant investments in AI infrastructure [6] - Microsoft aims to build a comprehensive AI business that integrates across its platforms, enhancing customer experiences [10] - The strategy includes expanding sovereignty solutions to meet local data residency needs [9] - The company is investing in both first-party and third-party AI models to enhance its offerings [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of AI and its integration into various business lines, emphasizing the importance of infrastructure investments [6][9] - The company anticipates continued strong demand across its cloud services, with a focus on balancing supply and demand [34] - Management highlighted the importance of long-term investments in R&D and product innovation to drive future growth [50] Other Important Information - Capital expenditures for the quarter were $37.5 billion, with a significant portion allocated to short-lived assets like GPUs and CPUs [27] - The company returned $12.7 billion to shareholders through dividends and share repurchases, a 32% increase year-over-year [29] - The company is seeing strong momentum in its Copilot offerings, with significant increases in daily active users and paid seats [18] Q&A Session Summary Question: Concerns about CapEx growth and Azure revenue - Management acknowledged the correlation between CapEx and Azure revenue, emphasizing long-term investments in infrastructure to meet demand [48][50] Question: Line of sight from hardware CapEx to revenue and margins - Management clarified that much of the capital spent is already contracted for the useful life of the hardware, reducing risk [60][61] Question: Durability of OpenAI-related backlog - Management expressed confidence in the breadth and diversification of their RPO, highlighting strong growth across various customer segments [68] Question: Capacity additions and their impact - Management confirmed ongoing efforts to add capacity globally, emphasizing the need for efficient operations across multiple locations [75] Question: Performance of Maia 200 accelerator - Management highlighted the significance of silicon innovation and its role in enhancing performance and cost efficiency for AI workloads [80]

Core Insights - Amazon has launched Graviton5, the highest density and most powerful CPU to date, featuring 192 processor cores in a single slot, promising to elevate AWS performance to new heights [1][3] - Since its introduction in 2018, Graviton chips have become a cornerstone of AWS computing services, with over half of the new CPU capacity added in the past three years attributed to Graviton chips [1][3] Technical Specifications - Graviton5 is built on TSMC's 3nm process technology and includes 192 Arm Neoverse V3 cores, supported by a 192MB L3 cache, which reduces cache misses and enhances performance by minimizing data retrieval from slower DRAM [1][4] - The L3 cache capacity has increased 5.3 times from Graviton 4's 36MB to 192MB, improving each core's cache capacity from 376KB to 1MB, which is beneficial for low-latency applications [2][4] - The memory subsystem has been upgraded to support speeds of up to 7200 MT/s, with future support for 8800 MT/s DIMMs under development [1][4] Performance Enhancements - The new M9g instances based on Graviton5 show a 25% performance improvement over the previous M8g instances, which were based on Graviton4 [3][5] - Graviton5's architecture allows for reduced inter-core latency by approximately one-third, enhancing performance for workloads such as online gaming, high-performance databases, and data analytics [5][11] Competitive Positioning - Graviton5's core count of 192 matches the highest core counts from AMD and Intel, which have 192 and 144 cores respectively, positioning AWS competitively in the server CPU market [3][5] - The Nitro system, which Graviton5 instances utilize, offloads storage, networking, and virtualization functions, freeing up CPU resources for client workloads [7][12] Future Developments - AWS plans to release additional instance types, including C9g for compute-intensive workloads and R9g for memory-intensive workloads, in 2026 [15] - The introduction of the Nitro isolation engine enhances security by ensuring workload isolation through formal verification methods [13] Industry Context - Other companies, such as Microsoft and Google, are also developing custom CPUs, indicating a growing trend in the industry towards proprietary chip development for cloud services [8][9] - Amazon's Graviton5 is part of a broader strategy to optimize performance and cost-efficiency in cloud computing, addressing the increasing complexity and scale of cloud workloads [10][11]