Arm Holdings experienced a choppy trading year in 2025, finishing down 11% despite trading in positive territory for most of the period. Early in the year, Arm joined the Stargate Project, a $500 billion AI infrastructure initiative alongside Nvidia, Oracle, OpenAI and SoftBank. That news propelled shares higher, but a broader market pullback in March—culminating in new tariffs on technology imports—triggered a sharp sell-off. The stock briefly recovered during a midyear tech rebound before dipping again on concerns that its valuation reflected an overheated AI market rather than fundamentals.

Arm’s business model centers on licensing CPU architecture and collecting royalties, rather than selling chips directly. This structure produced 24% revenue growth in the first half of fiscal 2026 (ending September), driven by lumpiness in large licensing deals. While trailing some peers that ship physical semiconductors, Arm’s model delivered consistent margin expansion, with adjusted operating income rising by 18% year-over-year in the same period. Investors have flagged the erratic quarterly revenue pattern as a potential volatility factor.

In 2025, Arm deepened its product portfolio by introducing Compute Subsystems (CSS), a more sophisticated chip-design framework that integrates CPU, GPU and interconnect elements. Early customer feedback indicates CSS could accelerate time-to-market by as much as 20%. On the cloud front, Arm secured design wins with Microsoft, Alphabet and Amazon, positioning its architecture at the heart of next-generation data-center chips. These partnerships underpin a growing royalty backlog that reached $450 million by year-end, up 30% from the previous fiscal year.

Looking ahead, Arm forecasts third-quarter revenue of $1.225 billion—24% higher than the same quarter a year ago—and adjusted EPS of $0.41, up from $0.39. While this guidance reflects steady growth, some investors are seeking more aggressive profitability gains. Arm’s management emphasizes long-term competitive advantages: a vast developer ecosystem, entrenched customer relationships and ongoing investments in AI–optimized architectures. These factors could drive sustainable royalty streams as AI adoption scales across automotive, cloud and edge markets.