Arm jumps 20% as company expects revenue windfall from new chip, a 'significant shift'

Arm jumped 20% on Wednesday after the company said its newly released in-house chip would generate $15 billion in revenue alone by 2031.

The British semiconductor and software design firm revealed its first-ever internal chip, the AGI CPU, at an event in San Francisco on Tuesday.

The chip is designed specifically for AI inference in data centers, as demand for central processing units has surged with the rise of agentic AI.

The stock closed down 1.5% on Tuesday.

For decades, Arm has typically licensed its instruction sets to other companies and collected royalties on every processor made with its designs.

However, with its new chip, it's now competing with its own customers, including Amazon , Microsoft , Nvidia , and Google .

Arm's announcement is the "most significant shift in the company's history," Citi analysts said in a note on Wednesday.

While the company's move to manufacturing chips was a poorly kept secret, the news of the fully developed server chip, the support from major firms like Meta and OpenAI, and bullish revenue expectations, led to a positive suprise for the market, they said.

"Arm's forecasts are well above even the highest of speculated estimates," and should ease any concerns about a change in the company's margin structure, the analysts said.

Meta is the first official customer for Arm's new chip as the company commits to huge data center build-outs and plan s $135 billion in capital expenditure related to AI this year.

OpenAI, Cloudflare, and SAP are also among its first customers.

"It's a $1 trillion market, and what we're seeing over and over again is actually our partners coming out and understanding and realizing this is actually great for the industry," Mohamed Awad, Arm's cloud AI head, told CNBC's Katie Tarasov in an exclusive first-look at the chip.

Arm's CFO Jason Child said it is selling its new chip at about a 50% gross profit, while Awad said it would be "competitively priced" to serve as an option for companies that can't afford to build their own in-house chips.

"It expands our market to include customers that were not interested in an IP model, gives our current customers choice, and for Arm, it creates a much larger profit opportunity," Child said at the event on Tuesday.

— CNBC's Katie Tarasov contributed to this report