Arm Holdings surges on on launch of its first AI chip

Shares of Arm Holdings (ARM) spiked more than 16% on Wednesday on the company's plans to launch its own artificial intelligence data center chip, which it is forecasting to bring in billions of dollars of revenue.

The company said that the new chip, called ARM AGI CPU, is built to address rising agentic AI workloads.

Meta Platforms (META) is the company's lead partner on AGI CPU and the two companies collaborated on its design. Meta will be utilizing the chip alongside its own custom silicon called Meta Training and Inference Accelerator (MTIA).

Other partners who will be deploying AGI CPU include OpenAI, Cloudflare, Inc. (NET), SK Telecom Co. (SKM), F5, Inc. (FFIV) and SAP SE (SAP).

Taiwan Semiconductor Manufacturing Co. (TSMC) is fabricating the ​device on its 3-nanometer technology. It will be made from two distinct pieces of silicon that ​operate as a ⁠single chip.

Arm's platform up until now has been focused on IP and Compute Subsystems (CSS). This will be the first that it is entering into silicon production.

“AI has fundamentally redefined how computing is built and deployed. Agentic computing is accelerating that change,” ARM CEO Rene Haas said in a statement. “Today marks the next phase of the Arm compute platform and a defining moment for our company."

With its expansion into silicon production, Haas said the company is "giving partners more choices all built on Arm’s foundation of high-performance, power-efficient computing, to support agentic AI infrastructure at global scale.”

Arm expects to put AGI CPU into volume production in the second half of this year. Haas told Reuters that the company is forecasting the chip to deliver about $15 billion in annual revenue in about five years.

“Delivering AI experiences at global scale demands a robust and adaptable portfolio of custom silicon solutions, purpose-built to accelerate AI workloads and optimize performance across Meta’s platforms,” Santosh Janardhan, head of infrastructure for Meta, said in a statement.

“We worked alongside Arm to develop the Arm AGI CPU to deploy an efficient compute platform that significantly improves our data center performance density and supports a multi-generation roadmap for our evolving AI systems.”

Will Arm be competing with end customers?

When Arm indicated to investors in July that it was looking to invest in making its own chips, there were concerns raised about the potential of entering into competition with some of its own end customers.

In a client note on Wednesday, Guggenheim analyst John DiFucci pointed out that Arm's management this week "expressed confidence that competition with some of their end customers is unlikely to materialize," and while he sees "logic" in this argument, he added that "it is worth monitoring the potential for future conflicts to arise."

"We've described ARM as one of three companies in our coverage universe that will likely see clear benefits from the advancement of AI technologies (the others being ORCL and MSFT)," DiFucci said. "While we are confident in the company's ability to execute, there is always risk in launching into new opportunities, especially something this transformational."

Meanwhile, Evercore ISI analyst Mark Lipacis said in a client note on Wednesday that the firm sees Arm as "a long-term AI platform winner with significant earnings expansion potential."

He drew a parallel between where Arm is today with where Nvidia (NVDA) was 10 years ago, with both being a "de facto ecosystem standard" and "inflecting market that is a natural fit for their portfolio."