U.K.-based semiconductor company Arm Holdings plc (NASDAQ: ARM) stock is up 141% year-to-date (YTD). The artificial intelligence (AI) revolution is driving big gains as it becomes more apparent that Arm will continue to be a large benefactor from AI tailwinds. While Arm is a semiconductor company, it doesn’t actually manufacture computer chips. Instead, it designs, develops, patents its architectures, licenses them, and collects royalties. It’s the ultimate asset-light business model. The migration of AI to the Edge is a boon for Arm Holdings as its architecture enables more power-efficient chips.

Arm Holdings operates in the computer and technology sector and competes with Synopsis Inc. (NASDAQ: SNPS), Advanced Micro Devices Inc. (NASDAQ: AMD), and Intel Co. (NASDAQ: INTC), which use x86 architecture.

The ARMv9 Revolution Has a Long Runway

Its latest iteration, ARMv9, has many features that help optimize AI and machine learning (ML) processes, including scalable vector extensions (SVE2), scalable matrix extensions (SME), and confidential computing architecture (CCA). ARMv9 isn’t just a single monolithic architecture but a rolling program of enhancements released over time.

As AI moves closer to the Edge with PCs, laptops, smartphones, and mobile devices, more companies are licensing ARMv9. Most importantly, the royalty rates are double those of earlier versions, which sets Arm up for bountiful future gains for years to come.

NVIDIA is a Customer, Partner and Investor

Its v9 architecture will gradually gain market share in the PC segment as its v8 dominates smartphones. NVIDIA is synonymous with AI chips. It can’t produce its H100 GPU fast enough to keep up with demand. Its next-generation GH200 Grace Hopper Superchip licenses ARMv9 architecture. ARM CPU and NVIDIA's GPU on Grace Blackwell are anticipated to eat into the x86 market share in the data center server market as they roll out in 2026. NVIDIA is not only a big Arm CPU architectures licensor but also an Arm Holdings investor.  

AI Moves Closer to the Edge

Edge computing refers to processing that occurs closer to where it is generated at the network's edge. Traditionally, data is collected and processed at a centralized data center. Edge computing processes the data closer to the source of the data through gateways and edge servers, which speeds up the process. The same holds true for AI. When you use an AI application like ChatGPT, your queries are sent to centralized servers that process your request and push back results.

Edge AI enables processing to be done on devices like PCs, laptops, and smartphones. It brings the processing power directly onto your devices—AI in the palm of your hand, literally. The benefits are low latency since the data doesn't have to travel so far, less bandwidth, offline functionality that doesn't require an internet connection, and enhanced security as sensitive data is processed locally.

ARM Stock Triggers a Bull Flag Breakout

The daily candlestick chart on ARM triggered a bull flag breakout as shares surged through the peak of the flagpole to new all-time highs. The flagpole formed after triggering a market structure low (MSL) breakout above $94.00 on April 23, 2024. ARM surged to a flagpole peak at $177.31 before pulling back in a parallel channel of lower highs and lower lows. The breakout formed when ARM surged through the upper descending trendline at $170.66. The daily relative strength index (RSI) is bouncing back up through the 70-band. Pullback support levels are at $164.00, $149.50, $135.41, and $121.38.  

Arm’s Royalty Cycle is Accelerating

Arm reported fiscal Q4 2024 EPS of 36 cents, beating consensus estimates by 6 cents. Revenues surged 46.6% YoY to $928 million, crushing $866 million consensus analyst estimates. Royalties rose 37% YoY, driven by v9 adoption. It was licensing for 60% YoY. Google has licensed ARMv9 for its custom Axion processor for use in data centers.

Arm Raised Fiscal 2025 Guidance

Arm issued upside guidance for fiscal Q1 2025 EPS of 32 cents to 36 cents versus 31 cents consensus estimates. Revenues are expected between $875 million to $925 million versus $866 million consensus analyst estimates.

Full-year 2025 EPS is expected between $1.45 and $1.65, versus the $1.54 consensus estimate. Full-year 2025 revenues are expected between $3.8 billion and $4.1 billion versus $3.98 billion. The company expects to have over 100 billion ARM devices ready for AI by 2025's end.

Arm CEO Rene Haas commented, “What we are seeing is because ARM has the largest installed base of CPUs on the planet and has over 70% of the world's population using those CPUs. It's natural that as these AI workloads are now being moved from anywhere from the edge devices to the training data center, they need support from an ARM CPU standpoint. So whether it's from cloud Edge from GPT to Llama, all AI workloads rely on and run on ARM, and we only see this increasing.

Arm Holdings analyst ratings and price targets are at MarketBeat.