Why Arm Holdings is a Leading AI Stock for Long-Term Investors

Published Date : 27/09/2025 

Arm Holdings offers a unique business model and technological edge in CPU efficiency, making it a strong long-term investment in the AI sector. The company's royalty-based revenue stream and expansion into system-on-chips (SoCs) position it for sustained growth. 

There's no shortage of news in the AI sector these days, but investors looking for a long-term AI stock to buy and hold shouldn't be swayed by daily headlines. Instead, you'll want to find a company with an enduring business model, strong competitive advantage, and a clear path to long-term growth on the top and bottom lines. One stock that fits all three of these criteria is Arm Holdings, which is best known for licensing its CPU architecture to partners like Nvidia and Apple.

Arm has a unique business model in the semiconductor sector. Rather than designing chips or even manufacturing them, the company licenses its CPU designs, collecting money from both a licensing fee and royalties when the product containing that license sells. That's been a winning, high-margin business model for Arm, even if it means the company doesn't collect as much revenue as it would if it were designing the chips entirely.

This business model also sets Arm up well for long-term growth. First, the company's CPU architecture is much better at conserving battery power than the competing x86 platform from Intel and AMD. That's why Arm has more than 99% market share of the smartphone market, and its market share is growing in data centers, where power is also at a premium.

Arm's royalties also last for a long time. In fact, half of the royalties it's collecting now come from designs that are more than 10 years old. The company continues to innovate, and it's now getting into chip design and more complex products like system-on-chip (SoC) licenses. However, its technological advantage in CPU architecture and the strength of its royalty model should ensure that the company continues to grow.

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Frequently Asked Questions (FAQS): 

Q: What is Arm Holdings' main business model?

A: Arm Holdings primarily licenses its CPU designs to partners, collecting both licensing fees and royalties when the products containing those designs are sold.

Q: Why is Arm's CPU architecture superior to x86 in terms of power efficiency?

A: Arm's CPU architecture is designed to conserve battery power, making it highly efficient for mobile devices and data centers where power consumption is a critical factor.

Q: What is the significance of Arm's royalty model?

A: Arm's royalty model provides a long-lasting revenue stream, with a significant portion of its royalties coming from designs that are over 10 years old, ensuring sustained financial growth.

Q: How is Arm expanding its product offerings?

A: Arm is expanding into more complex products like system-on-chips (SoCs) and continues to innovate in chip design, positioning itself for future growth in the semiconductor sector.

Q: What should investors consider before buying Arm Holdings stock?

A: Investors should consider Arm's unique business model, technological advantages, and long-term growth potential, while also being aware of the competition and broader market trends. 

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