Arm's Stock Soars 14% as AI Demand Fuels Server CPU Growth

Arm's stock has climbed over 14% after HSBC analyst Frank Lee upgraded its rating to buy and doubled the price target to $205. Lee argues that Wall Street is underestimating how AI will boost the company's business in the years ahead.

The surge follows growing demand for Arm's energy-efficient server processors, which are increasingly used in AI workloads alongside traditional GPUs.

Over the past five years, Arm has expanded its presence in server CPU licensing. Its market share in this sector rose from under 5% to between 15–20%, driven by major cloud providers like AWS and Google. Both companies now use Arm-based chips—AWS with its Graviton processors and Google with its Axion platform. Meanwhile, Intel and AMD have seen their dominance in server CPUs shrink as Arm's Neoverse designs offer better energy efficiency.

GPUs, led by Nvidia's CUDA platform, still dominate AI training and complex workloads. But CPUs are gaining ground in AI inference tasks, where efficiency and cost matter more. Arm's server CPU royalties could hit $4 billion by fiscal 2031, according to Lee's projections. He expects this revenue stream to grow by 76% annually over the next five years, far outpacing earlier forecasts.

While Arm's GPU licensing—through products like Immortalis—remains a small part of its business, the company's strength in CPUs positions it well for the AI-driven shift in data centres. Lee's $205 target may even prove too cautious if demand accelerates further.

Arm's rising stock price reflects confidence in its role as AI adoption grows. The company's server CPU royalties are set to become a major revenue driver, potentially lifting its valuation in the coming years. With cloud providers already shifting to Arm-based chips, the trend appears firmly in motion.