I had a chance to be part of a historic turn in arm strategy, an event appropriately called “arm everywhere.” Arm launched the company’s first hardware silicon product that it plans to sell to customers for revenue. This new adventure starts with an arm AGI CPU.

The departure from its IP and licensing-only DNA started with the CSS (Compute Subsystem) strategy, or bundling IP solutions, some two years ago. The big transformation of the business came with the update of the instruction set from arm v8 to v9. It brought the company double the IP/royalty profits, but it looks like that this was the first step toward much bigger plan. 

The CSS strategy to sell compute subsystems which often included CPU, NPU, GPU, and I/O subsystems brought additional growth to both the consumer and infrastructure/data center business units. Selling solutions rather than just IP and collecting royalties brought the CSS business to an impressive 20 percent of total royalty revenue for arm.

Now, arm sells CPUs. To quote CEO Rene Haas as well as SVP Mohamed Awad, arm sells AGI CPUs to customers for revenue as of today. The product will ship to customers later this year. Meta is public about being an early adopter of this new CPU and is working on a software stack to be able to deploy the racks as soon as they arrive.

Jason Child, Executive Vice President and Chief Financial Officer, gave an interesting presentation targeted at financial analysts. Based on an example of a $1,000 chip ASP, arm usually makes around $50 (5 percent) selling the IP. If it sells a CSS solution to a partner, the number increases to $100, or 10 percent of the revenue.

Now, selling the arm AGI CPU to customers will enable a gross profit of $500, or 50 percent. The full-chip solution maximizes revenue to around 50 percent gross profit. It is not unlikely that gross margins can increase beyond this number over time; just look at what Nvidia managed to do with its AI solutions, skyrocketing margins to around 71 to 75 percent.

arm is clear that they are selling the arm AGI CPU primarily to hyperscalers, large enterprises, and tier-1 server OEMs. The motherboards, as well as air-cooled or water-cooled racks, are being built and sold by partners.

This move to a hardware development and sales strategy would not have been possible without taking the company private and the heavy investment and vision supported by Softbank and Masayoshi Son. Selling hardware to customers for revenue represents an incredible opportunity and dramatically increases the TAM (Total Addressable Market) for arm. The financial market reacted accordingly.

As CFO Jason Child pointed out, the market opportunity of moving from an IP business with the arm AGI CPU ($2.4B TAM) to the hardware chip increases the TAM by 10 times, or $24B. Extending the customer base beyond cloud customers increases the FYE26 opportunity to $50B. The FYE31 TAM is expected to grow to $100B+.

Data center CPUs are expected to reach a $100B TAM by fiscal year 2031. Other CPUs in the data center are thought to grow from a $30B to a $55B TAM. The XPU market for AI accelerators could increase from the current $245B to more than $1T in FYE31. It is hard to pass up this opportunity.

Several analysts that I talked to see arm’s move toward making hardware as a positive for the company and the market. The AGI CPU, together with GPUs and AI accelerators, is a trillion-dollar market opportunity—why not take a shot at it?

arm clearly listened to the market opportunity and is taking a shot at hardware. Mohamed Awad, SVP of AI, commented that there will be future versions of the AGI CPU, with v1 and v2 already in late stages of development with customer commitments, while v3 is in the works.

We see that this is the first silicon chip of many to come.