ARM Stock Continues to Thrive Amidst the AI Chip Wars
A recent report by IDC highlights the growing dominance of ARM in the AI server market. According to the firm’s first-quarter AI infrastructure numbers, ARM has surpassed x86 as the largest platform in AI servers, with accelerated server value reaching $53 billion in the quarter. This significant growth is largely attributed to the increasing adoption of ARM’s architecture in smartphone chips, with major players like Apple, Qualcomm, Samsung, and MediaTek all utilizing ARM’s designs.
The benefits of this growth are being felt directly by ARM, with the company posting record revenue of $4.92 billion in fiscal 2026, a 23% increase from the previous year. The majority of this revenue comes from royalty payments, with data center royalties more than doubling year-over-year in the fourth quarter. The newer Armv9 architecture carries roughly double the royalty rate of the previous generation, resulting in higher revenue for ARM per chip shipped.
ARM’s foray into the data center CPU market with its AGI CPU has also been a significant development. The company’s first chip of its own, rather than a design licensed out to someone else, has the potential to bring in $15 billion a year by 2031. With customer demand committed across fiscal 2027 and 2028 already exceeding $2 billion, the constraint now is manufacturing capacity. The first production revenue is not expected until the final quarter of fiscal 2027.
The introduction of ARM’s AGI CPU has also raised questions about the company’s relationships with its licensees. As a major player in the data center chip market, ARM’s AGI CPU will compete directly with the chips used by its own licensees, including Amazon, Alphabet, Microsoft, and Nvidia. Each of these companies pays royalties to ARM for the use of its architecture, creating a potential conflict of interest.
ARM’s valuation is also a point of contention. The company’s forward GAAP price-to-earnings (P/E) ratio of 239.88x and price-to-sales (P/S) ratio of 51.84x are both extremely high, suggesting that the market has already priced in years of royalty growth. However, analysts expect growth of 23% in fiscal 2027, 42% in 2028, 32% in 2029, and 50% in 2030, indicating a solid EPS growth trajectory.
ARM’s balance sheet remains strong, with a market cap of roughly $310 billion and virtually no debt against $3.6 billion in cash. Investors will be watching closely to see how the introduction of ARM’s AGI CPU affects its relationships with its licensees and its overall business model.
