Meta and OpenAI will be among the first customers of Arm’s long-awaited new AI processor, which the SoftBank-backed tech group projects will be the main driver of a fivefold increase in revenue over the next five years.
Shares in Arm rallied after chief executive Rene Haas unveiled the financial forecasts around the high-stakes shift in strategy, from designing chips for other companies to producing its own “AGI CPU”, in San Francisco on Tuesday.
The launch of the chip will create a new rival not only to the traditional central processing units made by Silicon Valley stalwarts Intel and AMD but also several of the chip designer’s own customers, including Nvidia, Google and Amazon.
Arm expected $25bn in annual revenue in five years’ time, roughly five times its current sales, Haas told the FT. He said the chip represented a $15bn “revenue opportunity” by 2031, with growth also coming from higher royalty rates and strong licensing revenue from its traditional business.
The stock rose as much as 7.5 per cent in after-hours trading following the revenue forecast, having fallen 1.4 per cent during the day.
Haas called the launch of its first silicon product a “defining moment for our company”. “With the expansion into delivering production silicon with our Arm AGI CPU, we are giving partners more choices all built on Arm’s foundation of high-performance, power-efficient computing,” he said.
The long-anticipated Arm CPU — plans for which were first reported by the FT — marks a significant departure from the group’s traditional role as a “neutral” platform whose intellectual property is incorporated into chips designed by US tech groups.
The Cambridge-headquartered group said the product was intended to meet untapped demand for chips that consume less power in an AI data centre, promising billions of dollars in cost savings for customers compared with traditional CPUs.
Despite positioning it as an AI product, the chip will not compete directly with Nvidia’s graphics processing units, which have become the workhorses of the AI boom. Instead, it will cater to a growing need for “orchestration” of fleets of AI agents, such as software programming tools Claude Code and OpenAI Codex, as well as other cloud-based AI applications.
The chip is being manufactured by Taiwan Semiconductor Manufacturing Company, the same supplier used by Nvidia, Apple and other Arm licensees, and will ship at the end of this year.
Meta would be the “lead partner” for the chip, Arm said. Other early customers include ChatGPT maker OpenAI, cloud provider Cloudflare, German enterprise software group SAP, South Korea’s SK Telecom and AI chip designer Cerebras, which struck a $10bn infrastructure deal with OpenAI in January.
Analysts say the move will transform Arm’s business model. Selling its own chips is likely to produce far higher revenues than the licence fees and royalties that it collects from customers at present.
But moving into hardware is also likely to damp its gross margins, which are among the tech industry’s highest, hitting 98 per cent in its most recent quarter. Haas said the AGI CPU would still see a higher than 30 per cent operating margin.
Arm is expected to generate around $4.9bn in revenue for the year to the end of March, according to CIQ estimates.
Ahead of the announcement, analysts at HSBC described the prospective launch as a “game-changing” moment for Arm, with CPU shipments set to soar over AI infrastructure demand. BNP Paribas analysts echoed the sentiment, while adding that Arm needed to answer questions about how it would handle directly competing with its existing customers.
Arm said dozens of companies across the tech industry were “supporting the platform expansion”, including Amazon Web Services, Google and Nvidia. Haas said Arm had been careful about entering the market with its own chips, reaching out to its customers to assess their reaction and receiving no pushback.
US tech giants supported the move, he said, because Arm’s growing reach in the data centre would help drive the growth of their software.
Data centre CPUs have historically been dominated by Intel and AMD. Both companies use the same X86 chip architecture that rivals Arm’s designs, which started out in mobile devices but has now been used in more than 325bn devices, from cars to servers.
Huge infrastructure spending by Big Tech hyperscalers — and the rapidly growing demands on energy infrastructure — has seen a shift towards Arm-based chips.
Arm on Tuesday claimed its new chip is twice as efficient as similar X86 chips when handling the most demanding AI workloads. But it stopped short of comparing them to Nvidia’s Grace and Vera CPUs, which are paired with the semiconductor giant’s market-leading GPUs and are based on Arm’s technology.
Arm’s move comes as investors have generally cooled this year on AI infrastructure stocks, worrying about whether the huge capital spending on computing power is sustainable. Nvidia has also run up against geopolitical tensions between Washington and Beijing that have delayed its planned return to the Chinese market.
Haas said there was “no reason as far as we can tell” that the new Arm CPU could not be sold in China. “They don’t fall under any export control restriction, so there isn’t any issue there,” although “we don’t have any customers yet in China”, he added.
It would also “be a shame” if the UK’s build-out of its AI infrastructure did not incorporate CPUs developed by its national champion, Haas added. “We’ve talked a lot to the folks inside the government on this, and we’re hoping to do quite a bit there.”
