ARM HOLDINGS PLC /UK (ARM)

ARM isn’t a chip manufacturer—it’s the architect. Founded in Cambridge in 1990 as a joint venture between Acorn Computers and Apple, the company licenses its CPU designs to whoever wants to build processors. That simple model turns out to be tremendously valuable. You find ARM architecture in iPhones, Android phones, Qualcomm Snapdragon chips, Apple Silicon Macs, servers, automotive systems, IoT devices, and countless embedded processors. Not the designs themselves—those are proprietary and sold at premium licensing fees—but the fundamental instruction set and core technology that chipmakers build around.

The revenue model is straightforward: initial licensing fees when a partner first adopts ARM technology, then ongoing royalties based on how many chips they ship. A smartphone vendor like Qualcomm, MediaTek, or Samsung exynos team pays to license the architecture, designs their own variation of the processor, manufactures it, and ARM collects a royalty on every unit sold. Apple does this too—licensing ARM’s designs and customizing them as A-series and M-series chips. The company benefits from a vast multiplier: each licensed design could ship in tens or hundreds of millions of devices, and ARM’s cut scales accordingly.

What makes this defensible is the network effect and the switching cost. Chipmakers have invested years building toolchains, compilers, and development expertise around ARM. Switching to an entirely different architecture—Intel x86, MIPS, RISC-V—means retraining engineers, rewriting software, starting from scratch. ARM’s dominance in mobile and now spreading into servers and edge computing creates a gravity well. The Arm Instruction Set Architecture is the de facto standard for power-efficient processors below server scale.

The company went public on the London Stock Exchange in 1998, was acquired by SoftBank in 2016 for approximately USD 32 billion, and returned to public markets in 2023. Ownership remains global: SoftBank retains a meaningful stake, institutional investors hold shares widely, and the stock trades on Nasdaq as well as the London exchange.

Revenue flows from two buckets:

• Licensing – designs sold upfront to new customers adopting ARM technology
• Royalties – per-unit fees collected on every chip shipped by licensees

Royalties scale with the volume of devices in the market. The more phones, servers, IoT gadgets, and embedded systems that exist, the larger ARM’s installed base grows and the more royalties flow in. That creates a high-margin, predictable engine: minimal marginal cost to extend a license to a new partner or expand into new markets.

Competition exists—RISC-V is an open, royalty-free alternative gaining traction in some niches—but ARM’s entrenchment, design quality, and ecosystem support make displacement slow. The company faces cyclical exposure to semiconductor demand and depends on major licensees like Apple and Qualcomm not vertically integrating away from licensing. But barring major industry reshuffling, ARM’s model generates cash as long as silicon-based computing remains central to technology.