ARM Holdings Surpasses x86 in AI Server Market as Royalties Fuel Record Growth

Research firm IDC has reported that ARM Holdings has overtaken x86 as the dominant platform for artificial intelligence servers, with accelerated server value climbing to $53 billion in the first quarter. This represents a significant shift from below $30 billion in the third quarter of 2025, underscoring the rapid adoption of ARM architecture in data centres. The broader AI infrastructure spending forecast for the full year was also raised by IDC to $497 billion.

ARM’s financial performance reflects the strength of its licensing model, which collects royalties from major chipmakers including Apple, Qualcomm, Samsung, and MediaTek. For the fiscal year ended March 31, the company reported record revenue of $4.92 billion, a 23 per cent increase year-on-year, with royalty revenue contributing $2.61 billion. Data centre royalties more than doubled in the fourth quarter, supported by the newer Armv9 architecture which carries roughly double the royalty rate of its predecessor.

The company unveiled its first proprietary chip, the AGI data center CPU, on March 24, with Meta as the lead partner. Early customers include OpenAI, Cloudflare, and SAP. Chief Executive Rene Haas stated that customer demand commitments for fiscal 2027 and 2028 have exceeded $2 billion, more than double the figure provided at launch. Haas estimated the chip could generate $15 billion in annual revenue by 2031, although first production revenue is not expected until the final quarter of fiscal 2027 due to manufacturing constraints.

Despite strong financial results and analyst expectations for continued earnings per share growth, Wall Street sentiment is mixed. Wells Fargo and UBS recently lowered their price targets for ARM stock to $350 and $360 respectively, while maintaining buy ratings. In contrast, Susquehanna raised its target to $320. The stock has delivered a return of approximately 75 per cent over the past year, yet underperformed the broader semiconductor sector, which gained around 126 per cent.

ARM’s valuation remains high, with a forward price-to-earnings ratio of 239.88 times and a price-to-sales ratio of 51.84 times, reflecting market expectations for years of royalty growth. The company holds virtually no debt against $3.6 billion in cash. Analysts project earnings per share growth of 23 per cent in fiscal 2027, accelerating to 42 per cent in 2028, as contracts signed now begin to land in earnings later this decade.