3 Reasons Arm Holdings Is a Must-Buy for Long-Term Investors

Key Takeaways

Arm Holdings (ARM) is at the center of the AI revolution, playing a crucial role in both data centers and edge devices.
Key partnerships with Nvidia, Microsoft, Oracle, and OpenAI are driving its expansion into AI infrastructure.
A royalty-based revenue model ensures long-term and stable cash flow, making it a strong investment for the future.

Shortly after President Trump took office, the Stargate AI initiative was launched, a $100 billion AI infrastructure project.
Arm was named as one of five key partners, alongside:
- Nvidia: Arm CPUs are integrated into Grace Hopper and Grace Blackwell Superchips.
- Microsoft & Oracle: Both companies are collaborating with Arm on AI-optimized processors.
- OpenAI: Uses Arm technology for AI model efficiency and power savings.

📌 SoftBank, Arm’s majority owner, is also a major financial backer of the Stargate project.

Arm, SoftBank, and OpenAI have also launched Cristal Intelligence in Japan, an AI initiative focused on developing autonomous AI agents.
Arm’s energy-efficient CPU architecture is crucial for AI processing, ensuring lower power consumption and higher efficiency.

📊 Arm’s Cloud AI Market Growth

In the last two years, Arm’s market share in cloud computing grew from 9% to 15%, with the total market size expanding from $16 billion to $21 billion.
Major cloud providers rely on Arm-based chips for their custom AI processors:
- Amazon AWS: Graviton
- Microsoft Azure: Cobalt
- Google Cloud: Axion

📌 Arm’s Strength in Edge AI

AI adoption is rapidly moving from data centers to consumer devices such as:
- Smartphones (Apple, Samsung)
- Autonomous vehicles (Tesla, Waymo)
- IoT and smart home devices
- Robotics and industrial automation
Battery-powered devices require energy-efficient chips, and Arm’s architecture is the dominant choice for power-efficient AI processing.
Edge AI is expected to grow exponentially, making Arm a critical player in the next wave of AI adoption.

📈 Arm’s Unique Business Model: Licensing & Royalties

Unlike traditional chipmakers, Arm does not manufacture chips but licenses its technology to partners.
Arm collects royalties for each chip sold, creating a long-term revenue stream.

✅ Long-Term Stability in Royalty Income

Half of Arm’s current royalty revenue comes from chips designed 10+ years ago, demonstrating the longevity of its revenue model.
Newer architectures like v9 and Compute Subsystems (CSS) have higher royalty rates, ensuring future revenue growth.

📊 Q3 2024 Financial Highlights

Revenue growth: 19% year-over-year
Gross margin: 92.23%
Future royalty revenue will continue to increase as AI chip adoption expands.

✅ Arm’s AI Market Positioning

As AI adoption grows, Arm’s CPU designs will remain central to AI chip development.
Arm’s expansion in cloud computing and edge AI will drive strong long-term growth.

✅ Reliable Revenue Streams

Unlike companies that rely on one-time chip sales, Arm benefits from long-term royalty agreements.
This makes Arm less vulnerable to semiconductor market cycles compared to traditional chipmakers.

✅ A Strong Long-Term Investment

While ARM stock is currently trading at a high valuation (P/S ratio of 47x), its dominant position in AI suggests long-term upside potential.
AI is still in the early stages, and Arm is poised to be one of the biggest winners of this megatrend.

Arm Holdings is an essential stock for long-term investors looking to capitalize on AI growth.
It plays a crucial role in AI infrastructure, from data centers to edge devices.
The company’s royalty-based revenue model ensures stable and predictable long-term income.
AI adoption is accelerating, and Arm will remain a key player in the industry for years to come.