Arm CEO Says Data Center Business Is 'Exploding'

Yeah. Good morning. Good morning, Ed. So first off, the quarter was amazing for us. We had not only record revenue, but record royalties — $1.24 billion in revenue, nearly $740 million in royalties. And if you just stack that up, that's 27% year on year. Our data center business is exploding. We were up 100% year on year, probably north of 100% year on year. So to your question, no. The memory situation isn't really impacting Arm so directly. And you might ask, well, why is that? Well, number one, we are spread across a lot of different businesses. As I said, the data center business is increasingly growing for us, and we think in a few years it'll be our largest business. Secondly, our products are used across the board. So we tend to see in memory shortages the bottom end of the stack starts to get impacted, and that's actually lower royalty rates for us. So as a result, we don't get impacted very much. So, no, short answer is no impact this quarter. And we raised our guidance for the next quarter because, as I said, we're just not seeing that kind of impact. But I'm not denying that it's there. But for the Arm business, the impact is quite minimal.

It's very clear, and that's why in the earnings call I said in a few years. As you know, we don't typically provide forward guidance on an annual basis, but we have a line of sight that says we see it coming. And it's probably coming sooner than we had thought. And the reason for that is the data center growth. But if you click below that, why is data center growing so rapidly? It is the presence of Arm CPUs in the data center. We're now over 50% market share of the hyperscalers. Secondly, the CPUs that are being used are using more Arm CPUs inside the chip. 192 cores, for example, inside a Graviton chip going from 96. Vera, NVIDIA Vera, going from 72 cores on Grace now to 88. So what does that mean? That means more cores means more royalties and a high growth rate. Well, why are there more cores? When you think about agentic AI and everything associated with agents moving workloads across systems, managing workflows, etc., etc. That's the kind of work only CPUs can do. So to your question, while we're not giving a date, we can see it, and it's coming sooner than we had thought, even probably six to nine months ago.

Yeah. So, it's a great observation, Caroline. And yes, there's huge growth in Google's CapEx. Not all of that $180 billion is coming to us, of course. But what does that say? We continue to see investments in the data center, whether it's what Meta had announced or Microsoft announced and now Google Alphabet, that exceed what people had originally thought was even possible even a couple years ago. If you go back to when we announced the Stargate initiative in January 2024, $500 billion over a number of years, people looked at those numbers and said, how is that even possible? Now, eighteen months later, it looks quite credible. So bottom line is we are seeing such an investment because the AI opportunity, the way I like to think about it, is kind of the final frontier relative to technology. When you think about what could be beyond AI, it's really hard to imagine. So also the fact that AI has really had very little penetration, let's say, into large enterprise or into our health systems or things around drug discovery. So there's a long, long runway. I think people are a little nervous about it, decidedly so, because we've just not seen it before. Right? We've not seen the order of magnitude we're talking about. So it's somewhat natural for you to look at it and say, well, gravity's gotta hit it sometime. But then if you intellectually look at it and say, my gosh, is AI gonna be something that will change and transform how everything is done? Well, of course. And then there's gonna be investment to support that, and that's what we're seeing.