Shares of Arm Holdings plc (Nasdaq: ARM) are surging this morning after the semiconductor design firm announced it will begin making its own chips for AI workloads. The move from chip designer to chipmaker represents the most significant shift in the company’s business model in its 35-year history. Here’s what you need to know.
Arm ravamps its business model
For over three decades, the British semiconductor first had one primary business model: it designed chips and then licensed those designs to other companies, including Apple and Qualcomm, which would then make their own semiconductors based on Arm’s designs.
Under this business model, Arm essentially made the blueprints that other companies followed to make their own chips. And every time a company made a chip with Arm’s blueprint, Arm earned a licensing fee. That license fee amounted to about 5% per chip made with Arm’s blueprint, according to Bloomberg, meaning that if a chip cost $100, ARM made about $5 from it.
But now Arm has announced that it will no longer be just a chip blueprint company. It will also begin making and selling its own chips directly to customers, and those chips will be designed to run AI workloads.
The Arm AGI CPU is built for the agentic AI era
At an event yesterday in San Francisco, Arm CEO Rene Haas announced the pivot in the company’s business model, revealing the Arm AGI CPU. The chip is specifically designed for AI data center customers who need as much processing power as possible to run agentic AI systems.
This means that despite Arm’s designs being the blueprint for many of the CPUs found in laptops and smartphones, including Apple’s iPhone, the company’s first self-made chip will not be destined for those gadgets. Instead, the company is focusing on making the chips that so-called hyperscalers need to power their data centers.
“Today marks the next phase of the Arm compute platform and a defining moment for our company,” Haas said, announcing the pivot. “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, to support agentic AI infrastructure at global scale.”
Arm said it developed the chip alongside Meta to optimize its performance with the company’s existing AI infrastructure, and that the AGI CPU will enable “more efficient orchestration in large-scale AI systems.”
Arm also stands to benefit greatly from becoming a chipmaker. While its blueprint business model earns it about 5% in license fees per chip, Arm’s Chief Financial Officer Jason Child said its profits from self-made chips could reach around 50% per chip.
Of course, Arm’s move, while creating a new profitable revenue stream for the company, might also upset some of its customers who pay large sums to the company through its legacy chip blueprint business model, including Qualcomm and Nvidia.
These companies use Arm blueprints to produce some of their own chips, which they then sell to third parties. However, now that Arm is in the chipmaking business, its customers might see their blueprint provider as a direct competitive threat as well.
Yet given that roughly 10x more profit that Arm can potentially make selling their own chips versus just licensing chip designs, it’s no wonder Arm does mind ruffling its existing customers’ feathers.
ARM stock price jumps 13% on AI chipmaking pivot
Since Arm announced yesterday that it was entering the chipmaking business, the company’s stock price has spiked. Yesterday, ARM stock closed down about 1.4% to just under $135 per share. But once investors digested news of the company’s first AI chip, its stock price rose dramatically.
As of the time of this writing, in pre-market trading, ARM shares are now up 13% to $152.50 per share. That is a price point ARM shares have not seen since November.
And investors have a right to be optimistic if Arm’s revenue forecasts for the new chip are accurate. As CNBC notes, Arm says it expects its new AI chip offering to generate roughly $15 billion in annual revenue by 2031. Combine that new revenue with the revenue from Arm’s blueprint business, and the company could see revenue of up to $25 billion annually by 2031.
To put that number in perspective, Arm generated just $4 billion in revenue in 2025.
Before today’s stock price jump, ARM shares were already off to a good start in 2026. As of yesterday’s close, ARM shares had risen more than 21% year to date. Over the past 12 months, ARM shares were up 8% as of yesterday’s closing price.