Arm's (ARM) fiscal Q1 results were slightly better than consensus expectations as data center royalties more than doubled and helped offset lackluster Android trends, RBC Capital Markets said in a note Thursday.

Arm's Licensing business is "tracking ahead" and the company now has "higher confidence" in upside to its over $1 billion AGI CPU estimates, RBC said. However, 2027 royalty guidance was lowered amid Android weakness, the note said.

RBC said its estimates for Arm moved up slightly due to strength in the Licensing segment, and also as the investment firm sees "further upside potential as additional wafer supply becomes available."

The investment firm raised the company's 2027 earnings per share estimate to $2.30 from $2.18, and the 2028 EPS estimate to $3.17 from $3.12.

RBC said it still sees Arm as an "outsized beneficiary from Agentic AI-driven CPU growth" and believes that a "recent pull back makes risk/reward attractive."

The investment firm kept its outperform rating on Arm, and lowered the company's price target to $340 from $475, citing peer multiple contraction.