Arm Holdings Plc (NASDAQ:ARM) reported its second-quarter fiscal 2027 results after Wednesday's closing bell, and the numbers looked good on the surface. The chip designer beat estimates on both the top and bottom lines, with data center royalties more than doubling year-over-year. Yet the stock still slipped after hours, a reminder that in this market, beating the quarter is only half the battle.

The Numbers Behind the Beat

Arm reported quarterly earnings of 52 cents per share, which beat the analyst estimate of 47 cents by 8.33%, according to market data. Quarterly revenue came in at $1.44 billion, topping the Street estimate of $1.38 billion.

The revenue breakdown tells a story of broad-based growth across Arm's business:

• Royalty revenue increased 22% year-over-year to $715 million
• Annualized contract value (ACV), a metric for normalized license and other revenue, increased 13% year-over-year to $1.732 billion
• License and other revenue increased 23% year-over-year to $574 million

"Arm delivered a record first quarter, with data center royalties more than doubling year over year as the transition of AI infrastructure to Arm continued to accelerate," said CEO Rene Haas.

Haas also highlighted demand for the Arm AGI CPU, saying it "has continued to exceed our initial expectations," and added that "our continued work to expand manufacturing capacity with our partners gives us increasing confidence that we can deliver at the scale our customers require."

Why the Stock Fell Anyway

The culprit was the forward guidance. Arm expects third-quarter adjusted EPS of 52 cents to 60 cents, versus the 56-cent analyst estimate, which is fine. But revenue is projected at $1.49 billion, below the $1.53 billion analysts were looking for. In a stock priced for perfection, a revenue miss in the outlook is enough to take the shine off an otherwise strong report.

ARM Stock Price: According to market data, Arm Holdings stock was down 3.55% to $185 in Wednesday's extended trading.