Armv9 Architecture Helps Lift Arm To New Financial Heights

The Armv9 architecture has a lot of technical enhancements to commend it, but as far as Arm Holdings, the creator and licensor of the Arm architecture, is concerned one of the best features of Armv9, which was first unveiled four years ago, is that it comes with a higher royalty fee than prior Armv7 and Armv8 architectures.

And that fact, as well as wider adoption of the Arm architecture by hyperscalers and cloud builders for their homegrown CPUs, is lifting Arm to record-breaking revenue heights. In the fourth quarter of fiscal 2025 ended in March, Arm broke through $1 billion in a quarter for the first time, and for all of fiscal 2025, it broke through $4 billion in sales for the first time and royalty revenue broke through $2 billion for the first time. That’s a lot of firsts.

We don’t know how much more expensive Armv9 is compared to Armv8 when it comes to licenses and royalties, but Rene Haas, Arm’s chief executive officer, said on a call with Wall Street analysts that smartphone chip royalties were up 30 percent in the march quarter, compared to only 2 percent growth in shipments of smartphone chips by Arm’s partners. We don’t know that server chips are on the same royalty price curve as smartphone chips, but odds are the delta between architecture versions is similar, and in the case of server CPUs, Arm shipments are also growing fast as the royalties are also higher per unit.

“Arm is now increasingly the first choice for AI cloud deployments,” Haas said on the call. “We expect up to 50 percent of new server chips at hyperscalers to be Arm based this year. Nvidia’s Grace-Blackwell Armv9 is now in full production. Google’s Axion Armv9 now deployed in ten regions, used by 40 of their top 100 customers, offering up to 65 percent better price performance than current generation X86. And Microsoft Cobalt 100 supports major workloads for Databricks, Siemens, Snowflake, and internal services like Teams and Copilot. And over 50 percent of new AWS CPU capacity in the past two years is powered by Arm-based Graviton. We are also seeing strong momentum in custom silicon with companies turning to Arm for CPU, GPU and NPU solutions. This is driving both license and royalty growth.”

In the final quarter of fiscal 2025, Arm posted $607 million in royalty revenues, up 18.1 percent year on year. License and other revenue, including Compute Subsystem (CSS) licensing and IP packages that are now being used by six client device makers, six infrastructure makers, and one car system maker, rose by 53.1 percent to $634 million.

Add it up, and Arm brought in $1.24 billion in the fourth fiscal quarter, up 33.7 percent. Research and development is a big ticket item at ARM, and was actually down 6.5 percent to $546 million, representing 44 percent of revenues. Over the past several years, R&D costs have averaged around 53 percent, just to have a yardstick. Operating income therefore shot through the roof, rising 18.6X to $410 million. Net income was, however, actually off 6.3 percent to $210 million because Arm lost $290 million from equity investments. And this was with a $66 million tax benefit. Net income would probably have been north of $700 million if the stock market had not tanked and Arm saved that tax bennie for some later time.

It looks like Armv9 is driving just shy of 30 percent of royalties in the just-completed quarter:

By our eyes, it looks like Armv7 and old technologies drove somewhat less royalty revenues (call it high 20s in percent terms), and that leaves somewhere north of 45 percent but under 50 percent of royalties being driven by Armv8 devices.

Arm’s use cases have expanded radically between fiscal 2016 and fiscal 2025, as you can see in the chart below:

Cloud and networking compute devices still only account for about 10 percent of royalty revenues for all of fiscal 2024. This is pretty old data shown above and we wish that Arm had updated it for fiscal 2025. Our guess? Cloud and networking is now driving 15 percent to 20 percent of royalty revenues, and will hot 50 percent before too long.

We also wish that Arm had updated this chart for fiscal 2025, but it cuts off at fiscal 2024:

You would think Arm would want to brag a little with CPU chips based on its architecture finally taking off in the datacenter. Go figure.

We will end with some stats. In fiscal 2025, Arm’s partners shipped 30.6 billion chips for all manner of products, and since Arm was founded many decades ago, its partners have shipped a collective 310 billion devices. This is indeed the most pervasive CPU architecture in the world, and there is no surprise that more than 22 million developers write code for Arm chips. That installed base of chips and coders gives Arm a tremendous flywheel for momentum.

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