We’re initiating a position in Arm Holdings , buying 225 shares at roughly $169. Following Monday’s trade, Jim Cramer’s Charitable Trust will own 225 shares of ARM, representing about 1% of the portfolio. We’re calling up Arm from our Bullpen stocks to watch list. We added it to the Bullpen at the end of our April Monthly Meeting, and wrote about it on last Friday’s Homestretch . Arm is an integral part of the semiconductor food chain; it designs high-performance, low-cost, and energy-efficient CPU products and related technology. Historically, Arm didn’t manufacture any semiconductors; it designed them and licensed those designs to customers like Nvidia , Amazon , and Apple . Arm and Nvidia have a particularly close relationship. In September 2020, Nvidia announced its intent to buy Arm for $40 billion, but that deal fell apart because it could never win regulatory approval. Typically, Arm makes its money in two ways: first, customers pay Arm a licensing fee for the right to use its intellectual property and designs. Once those customers produce chips of their own, Arm collects a royalty fee on every semiconductor that gets made using their technology — usually a fixed percentage of the chip’s selling price, although they offer discounts at higher volumes. It keeps getting those royalties forever. But the Arm story just changed in a big way. At its recent ARM Everywhere event, the company unveiled its first in-house data center central processing unit, the AGI CPU , designed specifically for agentic AI workloads. This marks an ambitious shift from purely licensing designs to building and selling its own chips. Historically, CPUs based on the x86-based architecture used by Advanced Micro Devices (AMD) and Intel dominated the market. Arm-based processors, however, have picked up momentum, with AWS Graviton being one notable example, and now Arm is getting into the silicon production game with the launch of its AGI CPU. CPUs, or central processing units, are a hot item right now. In the early days of the AI boom, all the focus was on GPUs, or graphics processing units, for training large language models and powering inference applications. This created the perception that CPUs were less relevant in AI workloads. But as we entered the agentic AI phase, what the market suddenly realized is that it needs a lot more CPUs to handle specific tasks. Arm explained, “As AI shifts from training models to deploying continuously running agents that reason, plan, and act, the volume of tokens generated across AI systems is rapidly increasing and requires significantly more CPUs to handle reasoning, coordination, and data movement.” The company estimates that the AI data centers of today require 30 million CPU cores per gigawatt (GW). But with the explosion of Agentic, the company thinks data centers will need four times the amount of CPU cores for the same GW. No wonder the Agentic era coincided with a CPU shortage. Why choose Arm? It all has to do with efficiency. The company believes its CPUs deliver more than two times the performance per rack versus x86 CPUs, which the company thinks can deliver up to $10 billion in capital expenditure savings per GW of AI data center capacity. Allowing hyperscalers to do more while spending less is a great sales pitch, and Arm has already landed Meta Platforms as a major customer. OpenAI is another significant partner. Based on its current customer list, Arm has a line of sight to more than $1 billion in chip demand over the next two years. It thinks the biggest challenge right now isn’t finding customers; it’s memory shortages limiting customers’ ability to deploy their chips. The AGI CPU is expected to start shipping to customers at the end of this year. A key part of its evolving story is that Arm’s existing IP business is not going away. Management still expects its royalty revenue to grow at a 20% compound annual growth rate (CAGR) over the next five years. Arm believes it’s on a path to generating $25 billion in revenue by fiscal year 2031, with $15 billion coming from these in-house chips, creating more than $9 of earnings-per-share (EPS) power. That’s up from $4.9 billion in revenue, and EPS of $1.75 analyst expect in fiscal year 2026, according to FactSet. We’re initiating the position with a price target of $200, representing about 16% upside from current levels. (Jim Cramer’s Charitable Trust is long ARM, NVDA, AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
We’re starting a position in a chip designer poised to roar in the era of AI agents
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