ARM (ARM.US) phone conference: Data center will become the largest business "By 2030, Arm will have the largest market share in the CPU market"

With the sharp increase in the demand for underlying computational power for AI agents, Arm delivered a record-breaking performance in the fourth quarter of the 2026 fiscal year. Just six weeks after the release of its new AGI CPU product, customer demand had doubled, reaching $2 billion. According to Wall Street Horizons, after the market closed on May 6th, Arm (ARM.US) announced its fourth quarter results for the 2026 fiscal year, with revenue increasing by 20% year-on-year to $1.49 billion, exceeding the midpoint of the previously guided range. Full-year revenue also grew by 23% to $4.92 billion, marking the third consecutive year of over 20% revenue growth. During the earnings call, Arm CEO Rene Haas announced that demand for the Arm AGI CPU had doubled since its release six weeks ago, with total customer demand surpassing $2 billion, far exceeding the previously agreed upon supply target of $1 billion. However, supply bottlenecks are currently a core constraint, and the company is maintaining its annual revenue guidance of $1 billion for this product, while actively expanding capacity for wafers, packaging, and testing. At the same time, data center royalty revenue doubled year-on-year, with Haas stating that this business is expected to double again, making the data center Arm's largest business segment, reiterating the company's long-term goal of achieving $25 billion in revenue by the 2031 fiscal year. AGI chip demand explodes: "Orders double to $2 billion within six weeks" In this earnings report, the most anticipated focus in the market was the Arm AGI CPU, which was launched just six weeks ago (end of March) at the "Arm Everywhere" event. Arm's strategic progress in transitioning from pure IP licensing to custom chip manufacturing has been rapid, far exceeding management's expectations. During the call, Rene Haas could not hide his confidence in this product: "The customer response to the Arm AGI CPU has been very strong. We now have over $2 billion in customer demand spanning the 2027 and 2028 fiscal years. This surpasses the number we announced at the launch (of $1 billion)." Haas revealed that the team is working around the clock to ensure supply of wafers, memory, packaging, and testing equipment, stating: "We are experiencing an unprecedented demand for computation, and we are at the center of this demand growth." Despite the surge in demand, limited by supply chain capacity, CFO Jason Child stated that the company is maintaining its $1 billion revenue guidance for this product and confirmed that the revenue from the first batch of production shipments will be recognized in the fourth quarter of the 2027 fiscal year. AI agents drive a trillion-dollar market: "Core count more important than chip count" The market is highly focused on another key point: in today's GPU-dominated AI computational power landscape, what is the growth potential for CPUs? Rene Haas believes that AI is transitioning from query-based on human queries to a continuous, agent-driven workload, which greatly expands the role of CPUs. Rene Haas said: "These agent-type workloads require CPUs to coordinate tasks, move data, manage memory, enforce security, and orchestrate work around accelerators. As the expansion of AI agents continues, data centers will need more than four times the CPU capacity they have currently, creating an opportunity for a data center CPU market of over $100 billion by 2030." Facing competitors' predictions of a $120 billion market, Rene Haas candidly admits that the scale may indeed be larger and points out that looking at the market from the perspective of "core count" rather than chip count is more accurate. Rene Haas said: "In contrast to CPUs, the Arm AGI CPU already has 136 cores, while Vera has 88 cores, and in the coming years, core counts are expected to double, even triple. If a chip goes from 136 cores to 500 cores, the 'chip count ratio' may not change much, but the 'core count ratio' will undergo a fundamental transformation." "By 2030, the largest share of the CPU market will belong to Arm" When discussing the competitive landscape with AMD and Intel, Arm demonstrates strong confidence in its ecosystem expansion. Currently, top supercomputing platforms, including Vera from NVIDIA Corporation, Axion from Alphabet Inc. Class C, Graviton from Amazon.com, Inc. AWS, and Cobalt from Microsoft Corporation, have adopted custom CPUs based on Arm architecture. During the Q&A session, Rene Haas cited the movements of key customers and concluded: "I expect that over time, the majority of market share for the Trainium platform, TPU, and NVIDIA Corporation's accelerators will be Arm... I am confident that by 2030, the largest market share by CPU type will belong to Arm." This ecosystem binding is backed by significant energy efficiency economics. As Haas mentioned, Google's recently released TPU 8t and 8i, which use custom Arm Axion CPUs instead of x86 host processors, have improved performance by 80% compared to the previous x86 solution, all while reducing power consumption by 50%, making significant technological advancements over previous solutions. Established as a dual growth engine, long-term performance guidance anchors $25 billion Arm is undergoing a profound business model evolution. From simply selling IP and computational subsystems (CSS) to directly providing chips, Arm has created a unique barrier by offering "a computing platform, a software ecosystem." Rene Haas stated: "Our strategy is clear: we will increase royalties through IP and CSS and add chips as a new growth vector." When asked whether this hardware extension would cause tensions with existing ecosystem partners, Haas revealed that all 50 industry giants queried (including AWS, Microsoft Corporation, Alphabet Inc. Class C, NVIDIA Corporation, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, etc.) supported this strategy. Rene Haas explained: "The more software written and optimized for Arm, the stronger everyone becomes." This dual-engine model provides Arm with high performance certainty. The company expects that by the 2031 fiscal year, the AGI CPU business will generate $15 billion in revenue, while the IP business will double to $10 billion, totaling $25 billion in revenue, translating to over $9 in earnings per share (EPS). For the upcoming 2027 fiscal year, CFO Jason Child provided guidance: First-quarter revenue is expected to be around $1.26 billion, representing a year-on-year increase of approximately 20%; both royalty and licensing revenue are expected to maintain around a 20% growth rate. Arm's fiscal year 2026 fourth-quarter earnings conference call transcript is fully translated above as per the original content from "Wall Street Horizons" and edited by Chen Xiaoyi for GMTEight.