[ARM] Arm Holdings Thesis 2026: Server CPU Royalty Mix Drives v9 Architecture Cycle

Key Takeaways

• Arm Holdings plc (NASDAQ: ARM) FY2025 (ending March 2025) revenue ~$3.95-4.10B (+22-25% YoY) with adj. EPS ~$1.55-1.70 reflecting continued v9 architecture royalty rate expansion (~2x v8 royalty per chip) + Compute Subsystems (CSS) IP licensing acceleration + selected hyperscaler custom server CPU adoption (Microsoft Cobalt + Google Axion + Amazon Graviton4 + Meta MTIA) under continued CEO Rene Haas (~3-year tenure since February 2022; ex-Arm President IP Products Group 2017-2022 + ex-Nvidia GM Computing Products 2013-2017 + ~38-year semiconductor industry career).
• v9 architecture royalty cycle: post-March 2021 v9 architecture launch + ~25-30% royalty rate adoption FY2025 (~2x v8 royalty per chip; ~$0.20-0.40 royalty per smartphone v9 vs ~$0.10-0.20 v8); FY2026 catalyst: ~40-50% v9 adoption mix + Cortex-X925 + Cortex-A720 flagship deployment + ~$0.20-0.30 incremental annual EPS contribution.
• Compute Subsystems (CSS) IP: post-May 2024 CSS for Client + post-March 2024 CSS for Cloud productization providing pre-validated multi-IP packages (~CPU + GPU + interconnect + system IP) with selected ~3-5x royalty rate per chip vs traditional core licensing; FY2026 catalyst: continued hyperscaler + automotive + IoT customer adoption + ~$300-500M incremental annual royalty contribution.
• Hyperscaler custom server CPU: Microsoft Cobalt 100 (general availability November 2024) + Google Axion (general availability July 2024) + Amazon Graviton4 (general availability July 2024) + Meta MTIA Inference Accelerator generation 2 + selected NVIDIA Grace GH200 + Grace Blackwell GB200 deploying Arm Neoverse v-series + n-series; aggregate ~5-10% global server CPU market share FY2025 (vs ~1-2% FY2022) representing selected $200-400M aggregate annual royalty FY2025; FY2026 catalyst: ~10-15% market share + ~$400-700M aggregate royalty.

Company Background

Arm Holdings plc (NASDAQ: ARM) is the global semiconductor IP licensing leader with FY2025 (March-end fiscal year) revenue ~$3.95-4.10B (+22-25% YoY) reflecting continued v9 architecture royalty cycle + Compute Subsystems IP licensing acceleration + hyperscaler custom server CPU adoption. Arm IP cores power ~99%+ smartphone application processors + ~50%+ embedded MCUs + ~30-40% automotive + ~5-10% server CPU + selected emerging AI accelerator chips. The company employs ~7,000+ globally with ~280 active customer licensees including Apple + Qualcomm + MediaTek + Nvidia + Amazon + Microsoft + Google + Samsung + Tesla.

Founded 1990 as Advanced RISC Machines joint venture between Acorn Computers + Apple + VLSI Technology in Cambridge UK (~35-year heritage); selected post-1998 IPO London Stock Exchange + Nasdaq dual listing under Arm Holdings; selected post-September 2016 ~$32B SoftBank acquisition take-private + delisting; selected post-September 2020 ~$40B Nvidia proposed acquisition abandoned February 2022 due to UK + EU + China regulatory concerns; selected post-September 2023 ~$54B Nasdaq IPO re-listing (~10% public float; ~90% SoftBank retention); selected post-2024 follow-on offering modest float increase to ~10-12%.

Headquartered in Cambridge UK; ~7,000+ employees globally with ~$3.95-4.10B revenue. Two primary revenue segments: Royalties 55% revenue ($2.2-2.3B — per-chip royalties from licensee shipments; v8 + v9 architecture royalty rates; ~30B+ Arm-based chips shipped FY2025), Licensing + Other 45% ($1.7-1.8B — upfront licensing fees + Compute Subsystems IP + Architecture Licensing Agreements + Technology Access Subscriptions + selected services).

CEO Rene Haas since February 2022 (~3-year tenure); succeeded Simon Segars (CEO 2013-February 2022 retired) who led Arm through SoftBank acquisition + Nvidia abandonment + Arm China dispute resolution; Haas ex-Arm President IP Products Group 2017-2022 + ex-Nvidia GM Computing Products 2013-2017 + ex-NEC + Tessera + ~38-year semiconductor industry career; California-based (selected first Arm CEO based outside Cambridge UK).

v9 Architecture Royalty Cycle

Arm v9 architecture launched March 2021 representing first major architecture upgrade since v8 2011 launch. v9 introduces:

• Scalable Vector Extension 2 (SVE2) for AI + ML acceleration
• Confidential Compute Architecture (CCA) for privacy-preserving compute
• Realm Management Extension for hardware-isolated workloads
• Memory Tagging Extension (MTE) for memory safety

v9 royalty rate 2x v8 ($0.20-0.40 per smartphone v9 chip vs ~$0.10-0.20 v8) representing structural royalty per chip step-change.

v9 adoption progression:

• FY2023: ~10% of royalty mix
• FY2024: ~20% of royalty mix
• FY2025 (LTM March 2025): ~25-30% of royalty mix
• FY2026 catalyst: ~40-50% royalty mix on Cortex-X925 + Cortex-A720 flagship + Cortex-A520 efficiency core deployment

Selected v9 lead customers: Qualcomm Snapdragon 8 Gen 3 + Snapdragon 8 Elite + MediaTek Dimensity 9300 + 9400 + Apple A17 Pro + A18 + Google Tensor G3 + G4. FY2026 catalyst: ~$0.20-0.30 incremental annual EPS contribution from v9 royalty rate expansion.

Compute Subsystems (CSS) Licensing

Arm Compute Subsystems (CSS) productized May 2024 (CSS for Client) + March 2024 (CSS for Cloud) representing pre-validated multi-IP packages spanning:

• CPU: Cortex-X925 (flagship) + Cortex-A720 (mid-range) + Cortex-A520 (efficiency)
• GPU: Immortalis-G925 (flagship) + Mali-G725 (mid-range)
• System IP: CMN-S3000 mesh interconnect + DSU-120 cluster + system-level cache + memory subsystem
• Pre-validation: physical design + verification + benchmarking + reference platforms

CSS royalty rate 3-5x traditional core licensing ($0.50-1.50 per smartphone CSS package vs ~$0.20-0.40 v9 core only). FY2026 catalyst: continued CSS for Client + CSS for Cloud customer adoption + ~$300-500M incremental annual royalty contribution.

Hyperscaler Custom Server CPU Boom

Arm Neoverse v-series + n-series powering hyperscaler custom server CPUs:

• Microsoft Cobalt 100: 64-bit Neoverse N2 cores (~128 cores) GA November 2024 deployed in Azure
• Google Axion: Neoverse V2 cores GA July 2024 deployed in Google Cloud
• Amazon Graviton4: Neoverse V2 cores (~96 cores) GA July 2024 deployed in AWS
• NVIDIA Grace GH200 + Grace Blackwell GB200: 72 Neoverse V2 cores per Grace CPU
• Meta MTIA: custom Arm-based AI accelerator generation 2

Aggregate ~5-10% global server CPU market share FY2025 (vs ~1-2% FY2022) representing ~$200-400M aggregate annual royalty FY2025. FY2026 catalyst: ~10-15% market share + ~$400-700M aggregate royalty contribution.

Risks

• Smartphone unit demand: ~1.2B annual smartphone unit shipments stagnation could compress royalty growth
• Qualcomm legal dispute: ongoing Arm v Qualcomm royalty + licensing dispute (Delaware federal court trial December 2024 mistrial; ongoing); risk of license termination or royalty rate compression
• Hyperscaler in-house IP: Microsoft + Google + Amazon expanding internal CPU IP could moderate Arm royalty contribution
• China revenue exposure: ~20-25% China revenue exposure including Arm China JV (~10-15%) + China customers; geopolitical + IP licensing restrictions risk
• Public float dilution: ~90% SoftBank retention; potential follow-on offerings could pressure share price

Key Core Metrics

Market Evaluation

Arm trades at selected ~70-90x FY2026 P/E premium vs Nvidia (~30-40x) + Cadence (~50-60x) + Synopsys (~40-50x) reflecting selected ~99%+ smartphone IP monopoly + structural royalty rate expansion via v9 + CSS + hyperscaler CPU adoption growth runway. Selected re-rating catalysts include: (1) continued v9 royalty mix expansion toward 40-50%; (2) CSS for Client + Cloud customer adoption + royalty rate ~3-5x traditional core licensing; (3) hyperscaler custom server CPU market share expansion toward 10-15% from ~5-10% FY2025; (4) Qualcomm royalty + licensing dispute resolution; (5) post-2024 AI accelerator + edge AI IP penetration including Ethos-U85 NPU + Cortex-M85 + custom AI cores.

v9 Architecture Royalty Step-Change Deep Dive

v9 architecture represents selected most consequential Arm architecture transition since v8 2011 launch — ~$0.20-0.40 per smartphone v9 royalty rate vs ~$0.10-0.20 v8 represents ~2x royalty per chip step-change. v9 adoption progression FY2023 ~10% → FY2024 ~20% → FY2025 ~25-30% → FY2026 expected ~40-50%; aggregate ~30B Arm-based chips shipped FY2025 with selected smartphone (~1.2B annual) + automotive (~100M annual) + IoT (~6-8B annual) + PC (~300M annual) + server (~30M annual) + AI accelerator (~10-50M annual) end-market mix. v9 royalty rate expansion drives ~$0.20-0.30 incremental annual EPS contribution per ~10% v9 mix shift assuming sustained smartphone unit shipments + flagship + mid-range adoption velocity. Selected v9 lead customers Qualcomm Snapdragon 8 Elite + MediaTek Dimensity 9400 + Apple A18 + Google Tensor G4 + Samsung Exynos 2500 deployment FY2025-2026 supports continued royalty mix expansion.

FY2026 thesis: v9 royalty rate expansion + Compute Subsystems adoption + hyperscaler custom server CPU growth + Qualcomm dispute resolution.