Key Points
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Arm Holdings believes that its chip can help lower AI data center capital expenses by up to $10 billion per gigawatt.
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The company’s recently announced chip has already gained significant traction among customers.
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AMD and Intel are the dominant forces in the server CPU market, and they need to be wary of Arm’s growing influence in AI data center chips.
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Advanced Micro Devices (NASDAQ: AMD) and Intel (NASDAQ: INTC) have been among the hottest chip stocks on the market, delivering phenomenal gains over the past year as the artificial intelligence (AI)-fueled demand for their products is leading to impressive growth in their businesses.
While AMD stock has soared 300% over the past year, Intel shares have posted even bigger gains of 413% as of this writing. AMD has benefited from the lucrative contracts it has signed with hyperscalers and AI companies for its AI data center graphics processing units (GPUs) and server central processing units (CPUs).
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Meanwhile, the demand for Intel’s chips is exceeding supply. The company’s move into custom AI processors and the rising popularity of server CPUs for running AI inference in the cloud are tailwinds for its business. However, Arm Holdings (NASDAQ: ARM) could pose a major challenge to AMD and Intel’s juggernaut, going by comments made by CEO Rene Haas on the company’s latest earnings call.
Let’s see what Haas said and check whether Arm can indeed hurt the prospects of the two semiconductor stocks discussed in the article.
Image source: Getty Images.
Arm’s claim of substantially reducing data center capital costs should be a cause for concern for Intel and AMD
Arm has traditionally been known for designing chip architecture and intellectual property (IP), which it licenses to customers such as Nvidia, Amazon, Microsoft, Apple, and others. The company also receives a royalty from the shipment of each chip.
The British company, however, is now changing its business model. It will not just license its IP and take royalties from customers, but has also decided to make its own chips. It announced the ARM AGI CPU on March 24, noting that it is the first time in its 35-year history that it will produce its own silicon. The company is targeting the agentic AI and inference markets, which require energy-efficient computing solutions.
The good news for Arm investors is that it already sees more than $2 billion in revenue from its CPU over the next couple of fiscal years. That’s more than double the revenue it originally anticipated when it announced the AGI CPU. Clearly, customers seem to be quite interested in Arm’s inference-focused CPU. That’s not surprising, considering the comments Haas made on the recent earnings call:
Our first production silicon product for the data center will deliver more than two times the performance per rack compared with x86 platforms, with the potential to reduce AI data center capital expenditure by up to $10 billion per gigawatt.
AMD and Intel make chips using the x86 architecture. However, the energy-efficient nature of the Arm architecture explains why shipments of chips designed with it have been growing much faster than those of chips designed with the x86 architecture. According to market research firm IDC, sales of x86-based CPUs grew by an estimated 40% in 2025, lower than the 64% growth anticipated for non-x86 chips.
Counterpoint Research estimates that Arm-based chips will account for 90% of the custom CPUs deployed in AI servers by 2029. The research firm notes that the broad-based adoption of Arm’s silicon and architecture by hyperscalers will drive this shift away from x86 processors. It is worth noting that Arm has already scored a major hyperscaler, Meta Platforms, for its AGI CPU.
What’s more, it counts the likes of OpenAI, Cloudflare, Cerebras, and others as its deployment partners as well. All this probably explains why the Arm CEO believes the company could generate annual revenue of $15 billion from sales of its AGI CPU in fiscal 2031, up from nothing in the recently concluded fiscal 2026.
Should AMD and Intel investors be worried?
While Arm indeed has the technology and customer base to make a dent in the server CPU market, it is important to note that it is just getting started. The company expects to sell $2 billion worth of its AGI CPUs in 2027 and 2028, as noted earlier in the article. Intel, meanwhile, generated $5.1 billion in revenue from its data center and AI (DCAI) segment in Q1, up by 22% from the year-ago period.
AMD’s data center segment revenue shot up 57% year over year in Q1 to $5.8 billion. AMD and Intel, therefore, are leagues ahead of Arm. Moreover, Arm’s forecast of $15 billion in AI server CPU sales after five years isn’t particularly large, given that the company sees the overall revenue opportunity in the data center CPU market at $100 billion by 2030.
So, AMD and Intel are likely to see healthy growth in their AI chip businesses despite the major cost-reduction claims made by the Arm CEO. Additionally, the size of the server CPU market suggests there is room for multiple players. In fact, just as AMD and Intel, Arm could turn out to be a top AI stock in the long run as the company is now in a better position to capitalize on the AI infrastructure opportunity through multiple revenue streams that now include licensing, royalties, and chip sales.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Cloudflare, Intel, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
