Arm stock price surges 15%, the company expects new chips to generate huge revenue

Key Points

• Arm CEO Rene Haas stated that the newly announced chip is expected to generate $15 billion in annual revenue by 2031, leading to a significant rise in the company’s stock price.
• The company officially launched the AGI CPU chip on Tuesday, designed specifically for data center AI inference tasks.
• The first customers for the new chip include metaverse platform Meta, OpenAI, Cloudflare, and SAP.

Arm’s stock surged 15% on Wednesday after the company announced that its new self-developed chip alone would bring in $15 billion in revenue by 2031.

This British semiconductor and software design firm unveiled its first self-developed chip, the AGI CPU, at an event in San Francisco on Tuesday. As intelligent AI agents rise in prominence, demand for central processors has surged, and this chip is tailored for data center AI inference scenarios.

Arm CEO Rene Haas said at the event that this new chip is expected to achieve $15 billion in revenue by 2031, with the company’s total annual revenue reaching $25 billion and earnings per share of $9. This revenue forecast is six times its total 2025 revenue of $4 billion.

The stock closed down 1.5% on Tuesday.

Other chip stocks also generally rose on Wednesday, with Nvidia, AMD, and Intel all seeing gains.

For decades, Arm’s usual model has been licensing instruction sets to other companies and collecting patent fees based on each processor produced using its designs. However, this launch of a new chip means Arm will now directly compete with its own customers, including Amazon, Microsoft, Nvidia, and Google.

“Major Strategic Shift”

Citigroup analysts said in a Wednesday research report that Arm’s announcement is “the most significant shift in the company’s history.” They noted that although Arm’s involvement in chip manufacturing has long been public knowledge, the full development of a server chip, support from giants like Meta and OpenAI, and optimistic revenue projections have collectively brought positive surprises to the market.

The analysts stated: “Arm’s forecast far exceeds previous market expectations,” which should ease concerns about changes in the company’s profit margin structure.

They added: “Based on this, the $15 billion revenue forecast will generate an additional $7.5 billion in gross profit and $5 billion in operating profit, far exceeding previous expectations. We believe the market need not worry about profit margin changes; what truly drives shareholder value are the additional profits and cash flow.”

Meta is the first official customer of Arm’s new chip, as the company is aggressively expanding data centers and plans to invest $135 billion in AI this year. OpenAI, Cloudflare, and SAP are also among the initial customers.

Arm’s head of cloud AI business, Mohamed Awad, told CNBC in an exclusive interview: “This is a trillion-dollar market, and we keep seeing that partners are gradually understanding and realizing that this is actually beneficial for the entire industry.”

Arm CFO Jason Zierde said that the gross margin of the new chip is about 50%; Awad added that the chip’s pricing will be competitive, providing options for companies unable to develop chips in-house.

Zierde stated at Tuesday’s event: “This expands our market to customers who are not interested in intellectual property licensing models, offering more choices to existing clients, and creating much larger profit margins for Arm.”