Arm stock (ARM): The under-the-radar chip powerhouse driving Apple, Nvidia, and other tech giants

Arm stock (ARM) might not be the first name investors associate with semiconductors, but the company is a chip processing powerhouse for giants like Nvidia and Apple.

Unlike traditional semiconductor companies, Arm primarily generates revenue by licensing its intellectual property rather than manufacturing chips—a high-margin model supported by partnerships with industry heavyweights.

"Demand for our high-performance Armv9 and CSS compute platforms continues to exceed expectations, accelerating both our licensing and royalty revenue growth,” said CEO Rene Haas in the Q2 earnings call.

With the AI boom gaining momentum, ARM stock could see more upside.

Since hitting a record high in July, ARM stock has pulled back 30%, closing 3.4% higher at $133.06 on Nov. 19. At its current valuation, the company has a $139.9 billion market cap.

The recent slide in ARM stock is largely tied to geopolitical tensions, particularly U.S.-China export controls and concerns over Taiwan, the heart of global semiconductor production.

Despite these headwinds, Arm's business fundamentals remain solid.

On Nov. 6, the company reported a 5% increase in second-quarter revenue to $844 million, with royalty revenue surging 23% to $514 million. Non-GAAP operating margin also improved to 38.6%. Arm also announced that over 300 billion Arm-based chips had been shipped worldwide.

“This quarter is all about the validation of the strategies we’ve been talking about,” Haas told Reuters. “We’ve got some real proof points.”

Low-power innovation drives success

Arm’s low-power chip architecture, a key feature that extends battery life, powers nearly every major smartphone—including the Apple iPhone. In September 2023, Apple inked a long-term deal with Arm, securing access to its IP through at least 2040.

Nvidia is another major customer of ARM. The global chipmaker relies on Arm’s architecture for PC chips, data centers, and embedded AI platforms. This relationship reflects Nvidia’s failed attempt to acquire Arm for $40 billion in 2020.

Nvidia also holds 1.96 million ARM shares valued at roughly $280 million, making ARM its largest stock holding.This relationship reflects Nvidia’s failed attempt to acquire Arm for $40 billion in 2020.

The deal was ultimately blocked by U.S. regulators.

Beyond Apple and Nvidia, Arm’s technology powers Amazon Web Services (AWS) chips, which are integral to the world’s largest cloud platform. AWS currently holds a 31% global cloud market share.