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Arm Holdings stock gained 7% on Thursday after CEO Rene Haas said he was increasingly confident the company could meet Wall Street’s higher revenue expectations for its new data-centre chip, the AGI CPU.
Haas made the comments during an interview with CNBC’s Jim Cramer on Wednesday, saying he was “more confident” about achieving $2 billion in demand for the chip than he was during Arm’s July earnings call.
The comments come as investors focus less on demand for Arm’s first in-house data-centre CPU and more on whether the company can secure enough manufacturing capacity to convert that demand into revenue.
Arm CEO grows more confident on $2B AGI CPU demand
Arm first disclosed visibility into $2 billion of demand for the AGI CPU during its May earnings call, up from the $1 billion it had outlined when announcing the custom CPU in March.
However, Arm maintained its official $1 billion revenue outlook after its May results as it worked to secure sufficient supply.
Management said in July that its confidence in securing the necessary supply had improved.
Haas said that confidence has strengthened further since then.
“What we said in the last earnings call was that our confidence to achieve that $2 billion number had increased from May to July,” Haas told Cramer. “Here I am in September, and what I can tell you is, Jim, I’m more confident today than I was on that July earnings.”
Arm’s CPU also represents a change in its business model.
The company has historically generated revenue by licensing chip designs, while the AGI CPU represents a move towards selling a complete chip.
Arm expands beyond smartphones
Arm’s architecture is increasingly being used across cloud servers, AI-enabled PCs, intelligent vehicles, robotics and industrial automation.
The broader exposure could reduce the company’s historical reliance on smartphone volumes and handset replacement cycles.
These markets also require high computing performance while keeping power consumption and thermal demands under control, an area where Arm’s energy-efficient architecture has been positioned as an advantage.
In cloud infrastructure, hyperscale companies are increasing their use of custom processors based on Arm’s Neoverse architecture.
Data-centre operators face rising computing requirements from AI workloads while also managing electricity, cooling and infrastructure costs.
Arm can benefit from this spending through licensing and royalties without manufacturing every finished processor itself.
Data centres offer multiple growth avenues
Arm’s data-centre opportunity extends beyond CPUs.
Networking chips, smart network interface cards and data-processing units can handle functions including security, storage and traffic management.
As hyperscalers redesign infrastructure for AI, Arm architecture can be incorporated across multiple components.
This could increase the company’s content within data centres and provide additional licensing and royalty opportunities.
The AGI CPU adds another potential revenue stream by allowing Arm to capture more value from its intellectual property while developing relationships with customers seeking AI-focused computing solutions.
Arm shares remain about 45% below their June high of $452 despite holding onto their July post-earnings gains.
Bernstein analyst David Dai maintains a buy rating on Arm and lowered his price target from $500 to $480.
According to TipRanks data, 17 of 22 analysts have a buy rating on the stock, while five have a hold rating.
Moves like Thursday’s tend to draw fresh attention from growth investors using investment platforms.
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