Research firm IDC published its first-quarter AI infrastructure numbers this week, and one line stood out. Arm (ARM) has overtaken x86 as the biggest platform in AI servers. Accelerated server value on Arm climbed to $53 billion in the quarter, from below $30 billion as recently as the third quarter of 2025. IDC also raised its full-year forecast for AI infrastructure spending to $497 billion.
What the report really shows is who gets paid. Arm licenses its architecture and takes a royalty payment on every chip shipped using it. For Arm, this means that the war between chipmakers is largely a war between its own customers. Apple (AAPL), Qualcomm (QCOM), Samsung (SMSN.L.IX), and MediaTek all build their smartphone chips on Arm. In fiscal 2026, ended March 31, Arm posted record revenue of $4.92 billion, up 23%, with royalty revenue of $2.61 billion. Data center royalties more than doubled year-on-year (YoY) in the fourth quarter. The newer Armv9 architecture carries roughly double the royalty rate of the previous generation. So, Arm collects more per chip at the same time as more chips ship.
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Arm’s AGI CPU Puts It in Competition With Its Own Licensees
Arm unveiled its AGI data center CPU on March 24. This is the company’s first chip of its own rather than a design licensed out to someone else. Meta (META) is the lead partner in this, with OpenAI, Cloudflare (NET), and SAP (SAP) among the early customers. CEO Rene Haas said the chip could bring in $15 billion a year by 2031, and the stock rose 16% the very next day. On the May earnings call, Haas said customer demand committed across fiscal 2027 and 2028 had passed $2 billion, more than double the figure given at launch. The constraint now is manufacturing capacity, with first production revenue not expected until the final quarter of fiscal 2027. The bigger question is what this does to Arm’s relationships. Amazon (AMZN), Alphabet (GOOG) (GOOGL), Microsoft (MSFT), and Nvidia (NVDA) all license Arm architecture for their own data center chips, and each now pays royalties to a company selling one of its own.
Arm Holdings develops and licenses chip designs and related software for GPUs, CPUs, and AI processors. Semiconductor companies use the company’s technology to build chips for cloud computing, smartphones, consumer electronics, automotive, and other connected devices. Rather than manufacturing chips, ARM licenses its technology to semiconductor companies and device makers around the world.
Over the past year, ARM stock has delivered an impressive return of about 75%. Even so, the stock underperformed the broader semiconductor sector. During the same time period, the iShares Semiconductor ETF (SOXX) gained around 126%. The performance gap suggests that the AI rally benefited many areas of the chip industry rather than just a handful of leading companies like ARM.
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Arm’s valuation leaves no room for error. The forward GAAP price-to-earnings (P/E) of 239.88x and the price-to-sales (P/S) ratio of 51.84x have no 5-year averages to measure against, since the company only went public in September 2023. What both figures make clear is that the market has already priced in years of royalty growth. EPS growth trajectory looks solid. Analysts expect growth of 23% in fiscal 2027, 42% in 2028, 32% in 2029, and 50% in 2030. The acceleration matters because royalties arrive years after the licensing deals that create them. So the contracts being signed now land in earnings later this decade.
The balance sheet remains strong. The company with a market cap of roughly $310 billion holds virtually no debt against $3.6 billion in cash. Investors will be looking to find out what Arm selling its own chip does to the model. Building silicon is a far lower-margin business than licensing it, and at these multiples, the stock is priced for the higher-margin version of Arm.
The company reported strong fourth-quarter fiscal 2026 earnings on May 6, beating Wall Street expectations on both earnings and revenue. During the quarter, the company generated $1.49 billion in revenue, which came in $20 million above analyst forecasts. This marks a 20.2% YoY revenue growth. On the earnings front, it posted Non-GAAP EPS of $0.60, exceeding market expectations by $0.02.
Going forward, management expects demand for its AGI CPU to remain strong. For the first quarter of fiscal 2027, the company forecasts revenue of $1.26 billion and earnings per share of $0.36. It also plans to expand its AI and data center offerings by increasing efficiency and chip performance.
What Do Analysts Expect for ARM Stock?
Wall Street analysts remain divided on Arm Holdings’ outlook. Recently, two financial services firms, including Wells Fargo and UBS, lowered their price target on ARM stock. On July 22, Wells Fargo cut its price target on the shares from $410 to $350 while keeping a “Buy” rating. Two days back, UBS also lowered its price target on the stock from $470 to $360 and maintained a “Buy” rating. In contrast to Wells Fargo and UBS, Susquehanna raised its price target on ARM from $300 to $320 while reaffirming a “Buy” rating on July 21.
ARM stock carries a consensus “Moderate Buy” rating from 31 Wall Street analysts covering it. Based on their estimates, the stock has a median price target of $324.12, implying a further 16% upside from the current share price. Moreover, the most bullish analysts’ price target of $500 points to as much as 79% upside from here.
On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
