Arm Holdings plc American Depositary Shares (ARM) Stock Analysis

Arm’s principal competitive advantage lies in its dominant position as the world’s most widely deployed CPU architecture, with over 310 billion Arm-based chips shipped to date and a market share exceeding 50% of all chips with processors. Arm’s designs are the de facto standard in smartphones (market share >99%), and the company is rapidly gaining ground in data centers, automotive, and IoT, where its market share has risen to 41% and 54% respectively.

Unlike Intel and AMD, which manufacture and sell chips, Arm licenses its intellectual property (IP) to a broad ecosystem of semiconductor companies and OEMs. This asset-light, royalty-based model yields high gross margins (95% in FY2025) and recurring revenue, with roughly half of royalty income derived from products launched over a decade ago.

Arm’s extensive software and hardware ecosystem—supported by over 20 million developers—creates high switching costs for customers. Its energy-efficient designs are increasingly favored as AI and edge computing drive demand for performance-per-watt, an area where Arm outperforms x86 rivals.

Threats include the rise of open-source RISC-V architectures and customer in-sourcing of chip design, but Arm’s entrenched ecosystem, deep customer relationships (many >20 years), and ongoing investment in AI-optimized IP provide a durable moat. The company’s flexible licensing models and strong customer satisfaction further reinforce its competitive position.