Arm to Develop its First-ever Chip with Meta Being First Customer

Highlights:

• While Arm is a well-known name in the semiconductor industry, it has historically focused on licensing its technology rather than manufacturing its own chips.
• The growing demand for AI chips, along with the vast financial investments in this sector, may be prompting Arm to reconsider its role.

The UK-based chip design firm Arm Holdings Plc. to develop its first-ever semiconductor chip. The highlighting part is Arm has secured Meta Platforms Inc., the parent company of Facebook, as one of its initial customers.

Arm is planning to develop its own hardware for the first time, a move that would position it in direct competition with many of its existing clients.

While Arm is a well-known name in the chip making industry, it has historically focused on licensing its technology rather than manufacturing its own chips. The company provides an essential instruction set—a blueprint for creating powerful and energy-efficient chips—to other manufacturers. More recently, it has also begun offering advanced core designs that allow for greater customization.

Due to its neutral stance in the chipmaking industry, Arm has often been referred to as the “Switzerland” of chip technology, maintaining relationships with major players such as Apple Inc., Nvidia Corp., Qualcomm Inc., Intel Corp., Amazon Web Services Inc., and Microsoft Corp. without favoring any particular company.

However, the growing demand for AI chips, along with the vast financial investments in this sector, may be prompting Arm to reconsider its role. Meta alone has announced plans to invest up to USD 65 billion in AI infrastructure this year. While much of this will go toward Nvidia’s GPUs, it will also include purchases of CPUs from companies like Intel and AMD, as well as Meta’s own chip designs.

Reports state that Arm is specifically looking to develop a CPU for servers rather than competing directly with Nvidia and AMD in the GPU market.

In 2020, Nvidia attempted to acquire Arm from its parent company, SoftBank Group Corp., for USD 40 billion. However, the deal was blocked due to regulatory concerns about Arm’s crucial role in the semiconductor industry. Instead, Arm went public, and its market valuation has since soared past USD 173 billion, with SoftBank remaining its largest shareholder.

This year alone, Arm’s stock has risen by 29%, as it is increasingly viewed as a key enabler of AI technologies. The company’s leadership has indicated to investors that it aims to expand revenue by offering more advanced technology solutions.

Arm’s move into chip manufacturing aligns with SoftBank Founder Masayoshi Son’s broader vision of building a vast infrastructure network for AI. This USD 500 billion AI infrastructure investment will be primarily funded by SoftBank and Abu Dhabi’s state-backed MGX fund, with Arm named as a key technology partner.

Another indication of Arm’s ambitions came during its most recent earnings call, when CEO Rene Haas highlighted the massive AI infrastructure investments planned by major tech firms. Google, for instance, is set to spend USD 75 billion, while Microsoft is planning USD 80 billion investment—both presenting significant opportunities for Arm.

“No one is scaling back,” Haas emphasized, highlighting how major tech firms are ramping up their AI investments, especially in response to the rise of Chinese AI startup DeepSeek Ltd.

Meanwhile, SoftBank is pursuing the acquisition of Ampere LLC, a chipmaker backed by Oracle that specializes in CPUs for data center servers. This acquisition is a crucial component of Arm’s strategy to manufacture its own chips.

While entering the chip market could be highly profitable for Arm, the move also carries the risk of straining relationships with key customers, warned analyst Rob Enderle of the Enderle Group.

“Competing with your licensees is a good way to lose those licensees if you’re not careful, and this does represent a risk to those customers who license Arm technology,” the analyst said. “It means they’ll be competing with Arm itself while also using its technology, but of course, Arm will have a significant advantage as it owns that technology.”

Enderle added that this could be a strategic gamble for Arm, as the AI industry’s profitability might allow the company to generate enough direct sales to compensate for any lost licensing revenue.

“There is always a risk when you license something, as the one who owns the license may eventually decide it wants your revenue and profit, and there is little recourse to such customers if it does decide to move in on their turf,” he said.

Nevertheless, Holger Mueller of Constellation Research Inc. cautioned that the move is a risky bet, as shifting away from a purely licensing-based model could erode Arm’s profit margins.

“This will expose Arm to supply and production issues and greater stock volatility due to the roller-coaster nature of chip market sales, and it will upset its existing customers,” Mueller said. “It’s surprising, but in any case, Arm’s management is aware of all of this, so it must be able to see an upside.”

The reports indicate that Arm could announce its plans by summer or even sooner, though the company itself declined to comment on the report.

Still, the industry’s trajectory is unmistakable. Just four days ago, a media house reported that OpenAI is working on developing its own chips to reduce dependence on Nvidia’s GPUs. The project is said to be in the advanced design phase, with the next step likely involving Taiwan Semiconductor Manufacturing Co. for prototype production and testing.

Meanwhile, Forbes revealed this week that Meta is considering acquiring South Korean AI chip startup FuriosaAI Inc. as part of its strategic efforts to develop an alternative to Nvidia’s GPUs. The deal could be probably finalized as early as this month only.

Tech giants in cloud infrastructure—AWS, Google, and Microsoft—have also been developing their own AI accelerators, offering them as in-house alternatives to Nvidia’s hardware for their cloud customers.