Arm Holdings shares jump as billions in revenue expected from its AI chip

US listed shares of Arm Holdings ARM.O jumped nearly 12% in premarket trading on Wednesday after the chip firm projected billions of dollars in annual revenue from its own new artificial intelligence data-center chip.

The new chip marks a pivot for Arm, which has traditionally relied on licensing its designs to companies such as Nvidia NVDA.O and Qualcomm QCOM.Oand then collecting a royalty payment based on the number of units sold.

Unlike current chips that are designed to respond to queries as part of a chatbot, Arm'sAGI CPU will be able to handle data-crunching needs of"agentic AI", a system that acts on behalf of users with minimal oversight.

Arm expects the data-center chip to generate roughly $15 billion in annual revenue in about five years, CEO Rene Haas said in an interview with Reuters.

Overall, the company expects to generate revenue of $25 billion in that period, and annual earnings of $9 per share, he said.

"Arm has not taken a baby step, say the production of a die or a chiplet for its customers; it has jumped in with both feet, developing the highly performing and energy efficient Arm AGI CPU," Citigroup analysts said.

"The industry move to inference and, in particular, agentic AI is showing the need for more CPUs."

The rise of "agentic AI" has already fueled stronger demand for similar chips, which are manufactured by companies like Intel INTC.O and Advanced Micro Devices AMD.O.

Shares of Intel were up 3.4%, while AMD rose more than 1%.

Arm is trading at 63.08 times analysts' estimates for the company's earnings for the next 12 months, compared with AMD's 26.64 and Intel's 71.27, according to data compiled by LSEG.

-Reporting by Kanishka Ajmera in Bengaluru; Editing by Leroy Leo/Reuters