Arm soars 13% in premarket after announcing first in-house chip

arm Shares soared in early market trading on Wednesday after the company announced it would generate $15 billion in revenue by 2031 from newly released proprietary chips alone.

The British semiconductor and software design company unveiled its first-ever integrated chip, the AGI CPU, at an event in San Francisco on Tuesday. The chip is specifically designed for AI inference in data centers, as the rise of agent-based AI is rapidly increasing demand for central processing units.

Arm CEO Rene Haas said at the event that the company expects the new chips to generate $15 billion in revenue by 2031, with total annual revenue of $25 billion and earnings per share of $9. This revenue estimate is six times the $4 billion in annual revenue in 2025.

Arm was up about 13.2% in premarket trading. The stock ended Tuesday down 1.5%.

For decades, Arm has typically licensed its instruction sets to other companies and collected royalties on every processor built with its designs. But with the new chip, the company is now competing with its own customers, including: Amazon, microsoft, Nvidiaand google.

Citi analysts said in a note Wednesday that Arm’s announcement was “the most significant change in the company’s history.” The company’s move into chip manufacturing was not a well-kept secret, but news of a fully developed server chip, support from major companies such as Meta and OpenAI, and bullish revenue expectations provided a positive surprise to the market, they said.

“Arm’s forecasts are well above the high end of estimates, which should allay concerns about changes to the company’s earnings structure,” analysts said.

“Based on these metrics, the $15 billion revenue forecast would result in incremental gross/operating profit of $7.5 billion/$5 billion. This is a significant increase relative to prior expectations, so we believe the market need not worry about changes to the margin structure. It is incremental earnings and cash flow that will drive shareholder value,” they added.

meta Arm will be the first formal customer for the new chips as the company is undergoing a massive data center expansion and plans to spend $135 billion in AI capital this year. OpenAI, Cloudflare, and SAP was one of our first customers.

“This is a $1 trillion market, and what we’re seeing over and over again is actually our partners coming out and understanding and recognizing that this is actually a great thing for the industry,” Mohamed Awad, Arm’s head of cloud AI, told CNBC’s Katie Tarasoff in an exclusive first look at the chip.

Arm Chief Financial Officer Jason Child said the new chip is being sold at a gross margin of about 50%, but Awad said it will be “competitively priced” as an option for companies that can’t afford to manufacture their own chips themselves.

“This expands the market to include customers who weren’t interested in the IP model, gives current customers more choice, and creates a greater profit opportunity for Arm,” Child said at an event on Tuesday.

— CNBC’s Katie Tarasov contributed to this report