Shares of Arm Holdings PLC (NASDAQ:ARM) jumped more than 18% on Wednesday after the company unveiled its first in-house processor aimed at artificial intelligence workloads.
The UK-based semiconductor firm, long known for licensing chip designs rather than manufacturing its own silicon, introduced the new processor, called the AGI CPU, at its “Arm Everywhere” event in San Francisco.
Meta Platforms has signed on as the lead customer for the chip, with additional commitments from companies including OpenAI and Cloudflare, among others.
Designed specifically for AI workloads in data centres, the processor is built using Taiwan Semiconductor Manufacturing Company’s advanced 3-nanometre process and is optimized for energy efficiency. Arm said the chip can deliver roughly double the performance-per-watt compared with conventional x86 processors from Intel and Advanced Micro Devices.
The launch marks a significant strategic shift for Arm, which has spent more than three decades generating revenue through royalties on designs used by major technology firms such as Apple, Nvidia, Amazon and Google.
But Bank of America believes Arm Holdings’s new AI chip could drive growth, but its expectations look too optimistic and competition and near-term risks could limit upside.
The brokerage said Arm’s move into full-chip production could significantly expand its total addressable market, estimating growth from roughly $2.4 billion in royalties in fiscal 2026 to as much as $100 billion in CPU-related opportunities by fiscal 2031.
Arm forecast its chip business could generate about $1 billion in revenue in fiscal 2027-28, rising to $2 billion in 2029 and as much as $15 billion by 2031, with long-term earnings potential of $9 per share.
However, Bank of America said those projections appear ambitious, modeling earnings closer to $6.50 per share by 2031 based on more conservative assumptions for market size, growth and share.
The bank also warned that the CPU market is becoming increasingly crowded, with established players and hyperscalers developing in-house chips. It noted that some of Arm’s customers, including Meta and OpenAI, already maintain relationships with rivals such as AMD and Nvidia.
“Hyperscalers have their own customized central processing units, while Arm’s key customers Meta and OpenAI also have existing central processing unit agreements with Advanced Micro Devices and Nvidia, leaving limited opportunity for the AGI CPU,” analysts wrote.
“Moreover, the bigger artificial intelligence grows, the more pressure Arm’s smartphone and consumer markets would have from limited memory supplies.”
Additionally, analysts flagged risks to Arm’s core smartphone and consumer markets, citing potential memory constraints as AI demand grows, with global smartphone unit volumes expected to decline by 10% to 20% in 2026.
While Arm’s entry into chip manufacturing could unlock a much larger market, Bank of America said execution risks and intensifying competition may limit upside in the near term.