ARM Earnings Review | One Relevant Signal for the CPU "Arms" Race
Featuring baseball
Preamble
*written before earnings
ARM is in a very interesting position today.
I used to play baseball as a kid. I was never really that good, but I do kind of understand the sport.
Imagine your team is down by a point and it’s the ninth inning, and there are two outs. Both batters before you just hit a home run. Everyone is going crazy.
If you hit a home run, you tie the game. If you strike out, your entire team loses, and because two of your teammates just slammed it out of the park, you may or may not be feeling a little pressure.
You are ARM. Your teammates are Intel and AMD.
Well they’re not really teammates since they… you know. But I think the analogy still holds. Team CPU!
For Intel you could say their earnings sparked CPU mania. I covered them in depth here.
Basically the two big things were:
Intel crushed their top-line and revenue guidance by 10% via massive CPU shortage and price hikes.
They were the very first to spell out the agentic AI CPU to GPU ratio flip going from 1:8 in training to 1:4 in inference to parity or beyond in the agentic era.
AMD absolutely crushed it too. The headline is that they guided data center CPU to grow 70% year-over-year next quarter which was the engine of their top-line guidance beat. They also fully reiterated the CPU-to-GPU ratio. Literally the same exact 1:8 to 1:4 to parity thing that Intel mentioned.
But Lisa also made a comment that made ARM fly today.
“At our Financial Analyst Day in November, we outlined the server CPU market growing at approximately 18% annually over the next 3 to 5 years. Based on the demand signals we are seeing today and the structural increase in CPU compute requirements driven by Agentic AI, we now expect the server CPU TAM to grow at greater than 35% annually, reaching over $120 billion by 2030.”
As you can probably infer by now the point I’m trying to make is that ARM is under a ton of pressure.
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Earnings Time!
Everything was sort of inline, which, if you compare to AI Infra peers, is kind of disappointing, but ARM has a history of doing this. Also, no one really cares about ARM’s near-term revenues or EPS anyways, given that they trade at like a gazillion times earnings.
In terms of moving the share price, what actually matters is what happens in 2075. Jk, more like what happens in the later part of this decade. The entire thesis is that CPU demand goes exponential as agentic activity goes exponential, and ARM would eventually have the majority share of this market. You could easily argue that it goes far beyond the $120 billion TAM forecasted by AMD. The more you multiply this, depending on how singularity-pilled you are, the more multiples you would get on ARM’s $9 EPS projection.
And there’s where we have some very good news. This is the one relevant signal in the earnings release.