Arm Holdings: Overlooked AI Chip Stock to Watch

Published Date : 12/10/2025 

While Nvidia and Broadcom have been dominating the AI chip market, Arm Holdings is quietly positioning itself for a significant surge. Here's why Arm could be the next big win in AI. 

The improving demand for this chip designer's architecture could send its revenue and profits soaring in the long run.

Nvidia (NVDA) and Broadcom (AVGO) are among the top-performing semiconductor stocks in the past year, as both companies benefited from the booming demand for their artificial intelligence (AI) chips deployed in data centers to accelerate AI workloads. Broadcom's stock price surged an impressive 91% in the past year, while Nvidia has respectable gains of 45%.

However, another important company that's playing a key role in boosting global AI adoption struggled on the market by comparison. Arm Holdings (ARM) stock appreciated just 19% in the past year, which is less than the 30% gains by the PHLX Semiconductor Sector index over the same period. Still, there is reason to believe Arm stock could regain its mojo and skyrocket in the future. Here's why.

Arm is a British company that doesn't make any chips of its own. Instead, it is known for providing its intellectual property (IP), architecture, development tools, and associated software to chip designers who use it to design central processing units (CPUs), graphics processing units (GPUs), and microprocessors. Arm receives an up-front licensing fee from customers that develop chips using its architecture. Importantly, the company also receives a royalty from the shipment of each chip that's made using its IP. So it can build a strong stream of revenue and profits in the long run if more companies adopt its architecture.

Market research firm IDC projects that sales of Arm-based AI accelerator chips deployed in servers could rise from $32 billion in 2024 to $103 billion in 2029. And sales of non-AI Arm-based chips in servers are expected to rise from $14 billion last year to $31 billion in 2029. So, the size of the Arm-based server processor market is expected to almost triple over the next five years. Broadcom and Nvidia are going to play a key role in driving this market's growth, and both chipmakers have been using Arm's designs to manufacture their AI chips.

Nvidia, for example, has built its Grace server CPU using Arm's IP. The chip giant has integrated this CPU with its popular Blackwell AI GPUs to create a rack-scale platform for AI training and inference. These systems have been in terrific demand from hyperscalers as well as cloud infrastructure providers as they are being deployed to power AI factories. According to Nvidia, an AI factory is 

Frequently Asked Questions (FAQS): 

Q: What is Arm Holdings' business model?

A: Arm Holdings provides intellectual property (IP), architecture, development tools, and software to chip designers. It earns revenue through up-front licensing fees and royalties from the shipment of chips made using its IP.

Q: Why is Arm Holdings undervalued compared to Nvidia and Broadcom?

A: While Nvidia and Broadcom have seen significant stock gains, Arm Holdings has only appreciated by 19% in the past year, less than the PHLX Semiconductor Sector index. However, Arm's role in the growing AI market suggests potential for future growth.

Q: What is the projected growth of the Arm-based server processor market?

A: IDC projects that sales of Arm-based AI accelerator chips deployed in servers will rise from $32 billion in 2024 to $103 billion in 2029, and sales of non-AI Arm-based chips in servers will rise from $14 billion last year to $31 billion in 2029.

Q: How does Arm Holdings benefit from the AI factory concept?

A: Nvidia, using Arm's IP, has created a rack-scale platform for AI training and inference, which is in high demand from hyperscalers and cloud infrastructure providers. This increases the demand for Arm's architecture, boosting its royalties and revenue.

Q: What is Arm Holdings' Armv9 architecture, and why is it important?

A: The Armv9 architecture is AI-capable and offers advanced computing performance and efficiency. It carries double the royalty rate of the prior generation architecture and is seeing healthy adoption, contributing to higher earnings for Arm.