For decades, ARM relied on a licensing and royalty-based model. Now, by launching its own chips, the company is entering direct competition with major clients such as Amazon and Microsoft. Amid surging demand for AI computing, analysts have described this strategic shift as one of the most significant transformations in ARM’s history.

ARM shares jumped more than 16% on Wednesday. The company’s CEO stated that the new chip is expected to generate $15 billion in revenue by 2031, with total annual revenue reaching $25 billion and earnings per share of $9. This projection is roughly six times its estimated $4 billion annual revenue in 2025.

Traditionally, ARM licensed its instruction set to other companies and collected royalties on processors built using its designs. However, with the introduction of its own chips, ARM is now competing directly with key customers, including Amazon, Microsoft, Nvidia, and Google.

Citigroup noted that this announcement represents the most significant strategic shift in ARM’s history. While the company’s move into chip manufacturing was not entirely unexpected, the launch of a full server-grade chip, combined with support from major players such as Meta and OpenAI and strong revenue projections, came as a positive surprise to the market. ARM’s outlook exceeds even the most optimistic market expectations and may alleviate concerns about changes to its margin structure.

Based on these projections, the $15 billion revenue target could translate into approximately $7.5 billion in additional gross profit and $5 billion in operating profit — significantly higher than previous estimates. Ultimately, it is incremental profit and cash flow that will drive shareholder value, rather than concerns about margin structure.

Meta has been confirmed as the first official customer for ARM’s new chip. The company is rapidly expanding its data center infrastructure and plans to invest $135 billion this year in AI-related capital expenditures. OpenAI, Cloudflare, and SAP are also among the early customers.

Market Interpretation:

ARM’s CFO stated that the new chip is expected to deliver a gross margin of around 50%. The product will be priced competitively, offering an alternative for companies that lack the resources to develop their own chips. This approach not only expands ARM’s addressable market to new customer segments previously uninterested in licensing models but also provides existing customers with more options, ultimately creating greater profit potential for the company.