ARM: A Most Unlikely Beneficiary

The recent performance of Arm Holdings (ARM 3.80%) shares has been, shall we say, unremarkable. A brief spasm of enthusiasm following the September 2023 listing has subsided, leaving investors with the distinct impression of a stalled ambition. One might almost suspect a deliberate attempt to disappoint.

This is not entirely surprising. The prevailing narrative of artificial intelligence, so relentlessly trumpeted, had already priced in Arm’s potential. The company’s strength, of course, lies in its power efficiency – a quality increasingly valued in the data centres that now house this digital leviathan. (Amazon‘s Graviton5, a processor of decidedly unromantic nomenclature, illustrates the point: a 30% improvement in performance coupled with a 30% reduction in cost. A neat trick, if one can overlook the vulgarity of such demonstrable efficiency.)

Such triumphs, however, are rarely sustained. The moment arrives when results must justify valuation. Arm Holdings appears to be approaching that rather awkward juncture.

Not a Semiconductor Company, Precisely

The peculiarity of Arm’s business model deserves some attention. It does not, at present, manufacture chips. It licenses its designs, collecting royalties from those who do. These arrangements, often spanning two to four years (though frequently extending beyond), provide a certain… predictability. A welcome respite from the manic fluctuations of the market, one might say.

The timing of recent AI-related contracts is, therefore, significant. Many are only now beginning to generate substantial revenue. Amazon Web Services, for instance, adopted Arm-based processors in 2018, but those capable of handling contemporary AI workloads only materialized in 2023. And even that fleet is undergoing continual refinement, with the aforementioned Graviton5 representing the latest iteration.

Other technological behemoths are similarly reliant on Arm’s expertise. Alphabet‘s Google engaged Arm in 2024 for the architecture of its Axiom processors, designed specifically for its own AI data centres. More noteworthy, perhaps, is the fact that Google’s Tensor processors, available to cloud computing customers, are also based on Arm designs. A curious admission, given Google’s penchant for internal innovation.

Meanwhile, Apple has long benefited from Arm’s designs, a relationship cemented by a new long-term agreement extending beyond 2040. This coincides, naturally, with Apple’s somewhat troubled attempts to integrate AI into its offerings. One suspects a degree of desperation beneath the polished veneer.

A Year of Reckoning, Perhaps?

Predicting revenue with any certainty is, of course, a fool’s errand. Analysts anticipate top-line growth of 21% this year and just under 22% next year. These figures, while respectable, hardly constitute a revolution.

What can be said with some confidence is that this year’s growth should illuminate the extent to which Arm Holdings has laid the groundwork for sustained expansion. A significant portion of the AI industry has already committed to Arm’s chip designs. A rather impressive feat, given the industry’s customary disdain for long-term planning.

2026-01-28 21:52

Not a Semiconductor Company, Precisely

A Year of Reckoning, Perhaps?

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