Arm Holdings PLC (NASDAQ:ARM) is expected to unveil its first in-house standalone merchant CPU at its upcoming “Arm Everywhere” event in San Francisco, a major shift from the company’s traditional IP-licensing and royalty-based business model, according to Bank of America analysts.
Bank of America believes that the new chiplet could dramatically increase Arm’s potential market and earnings, enabling the company to compete across the rapidly growing $60 billion agentic and AI CPU segment by 2030.
Potential customers could include OpenAI, Microsoft, Meta, and other SoftBank-owned CPU vendors such as Ampere.
However, Bank of America cautioned that full commercial ramp could take three to four years, and near-term prospects are constrained by a slowdown in smartphone units, which account for roughly half of Arm’s royalty revenue.
The analysts also noted that the CPU market is becoming increasingly crowded, and Arm may face challenges competing against its own licensees.
On the financial opportunity, the note said that by moving into full chiplets, Arm could capture far more revenue and profit per chip than it currently earns from royalties alone, with much of the incremental revenue likely flowing directly to earnings thanks to prior R&D via Arm’s CSS initiatives.
Despite the promising long-term outlook, the analysts maintained a ‘Neutral’ rating with a $140 price target, emphasizing the need for more visibility on meaningful market share gains.
Short-term risks include declining smartphone sales, a crowded CPU market, and the company potentially competing with its own customers.
ARM’s US-listed shares traded up 4% at $135 on Friday morning, up 24% so far this year.