(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Karen Kwok
LONDON, March 30 (Reuters Breakingviews) - Arm (ARM.O) is embarking on a new adventure. The $153 bln SoftBank-controlled group’s shares jumped 16% last Wednesday as it outlined a plan to sell AI processors, not just licensing designs for them, as it has hitherto done. CEO Rene Haas even expects to make some $15 billion in sales from the new business within five years. It’s a bold bet on the future of AI. Nvidia’s (NVDA.O) flashy $30,000 graphics processing units (GPUs) have so far provided the core infrastructure for training large language models, as they excel at crunching vast datasets. But as artificial intelligence shifts toward inference - deploying those models for everyday uses, and even doing “agentic” tasks with minimal human oversight, AI systems will need a lot more of the standard chips typically used in smartphones and the like, known as central processing units (CPUs). These are better for managing data flows and coordinating tasks. Servers that once paired a handful of CPUs with dozens of GPUs may approach a one-to-two ratio, Deloitte reckons.
Arm, which has historically licensed designs for semiconductors, therefore senses a big new opportunity. Instead of collecting its standard 5% royalty from tech giants like Nvidia and Amazon.com (AMZN.O) , building the chips outright allows Arm to keep more of the revenue for itself. The company already has $1 billion in customer commitments for 2028 and expects that number to double annually through 2030. Ultimately, Haas expects CPUs to drive 60% of Arm’s revenue by the year ending March 2031.
Still, the challenges are formidable. The legacy CPU industry is dominated by two players, with Intel (INTC.O) holding roughly 74% and Advanced Micro Devices (AMD.O) 26%, making it hard for new entrants to crack. Arm’s bet hinges on AI agents drastically expanding the total addressable market, capturing new workloads where power efficiency is paramount. It claims its technology delivers twice the performance per watt than existing CPUs. But incumbents Intel and AMD possess massive R&amp;D budgets, deeply rooted enterprise relationships, and may challenge Arm’s technological advantage later.
Arm’s pivot may also pit it against its own chipmaker customers, and potentially Big Tech companies, like Amazon, who are starting to manufacture their own semiconductors. If its customers see Arm as a threat, they will explore alternatives to its designs, or haggle over pricing. That risk appears mitigated for the next few years: around 70% of the company’s projected royalty revenue is already locked under multi-year contracts through fiscal 2031.
Arm’s valuation reflects some of those challenges. Arm’s stock surged 16% last Wednesday, after it announced the new strategy, adding $23 billion in market value. Apply a multiple of four times sales, broadly in line with the average of chipmaking peers Nvidia, AMD, Intel, and Broadcom (AVGO.O) for 2030, and the bump only bakes in an extra $6 billion of additional revenue, less than half of Arm’s $15 billion goal. Investors may be signalling Haas should dial back his optimism. Follow Karen Kwok on LinkedIn and X. CONTEXT NEWS
Arm on March 24 announced a new artificial intelligence ​data centre chip, which it said will add billions of dollars of revenue and represent ‌a significant shift in the company’s strategy.
The new chip, called the AGI CPU, will address data-crunching needed for a specific type of AI that is able to act on behalf of users with minimal oversight, instead of responding to queries as part of a chatbot.
Shares of Arm soared 20% to their highest since November, as the British chip group expects the data-centre chip to generate roughly $15 billion in annual revenue in about ​five years.
Rivals Intel and Advanced Micro Devices also advanced more than 5% each.
Analysts expect Arm’s new chip business to reach 60% of revenue by 2031
<img src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/BRV-BRV/zgvolnejmpd/chart.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" width="1420" height="868" original-src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/BRV-BRV/zgvolnejmpd/chart.png"/>
(Editing by Neil Unmack; Production by Streisand Neto)

9984

ARMU

ARMG

ARMW

SFTBY

- Arm is shifting its strategy by entering the AI processor market, projecting $15 billion in sales within five years.  
- This new approach aims to capture a greater share of revenue by manufacturing chips directly, moving away from its historical licensing model.  
- However, the company faces significant challenges from established competitors Intel and AMD, making its future revenue goals ambitious.

BREAKINGVIEWS-Arm’s chip adventure is bold bet on AI evolution