Arm's quarter shows how it's carving a lucrative path in the crowded CPU resurgence

An important development from the financial markets: Arm Holdings shares fell Wednesday evening despite the chip designer reporting a better-than-expected quarter and giving an upbeat outlook for its data center CPU business. Revenue for the company's fiscal 2026 fourth quarter ended March 31 increased 20% year-over-year to $1. 49 billion, ahead of the LSEG-compiled analysts' consensus estimate of $1.

Non-GAAP earnings per share (EPS) increased 9% to 60 cents, beating the 58 cents expected. ARM YTD mountain Arm Holdings YTD Shares of Arm dipped roughly 6% in after-hours trading, giving back about half the gains they had during the regular session. We pointed out in Wednesday's Morning Meeting for Club members that this could happen — great numbers and a possible pullback in the stock because of the run-up ahead of the print.

Economic Details

It's exactly what happened. The stock closed at a record high of $237 — padding out year-to-date gains to 117%. Bottom line When we started a position in Arm last month at around $170 per share, we wanted to ensure the portfolio had exposure to the data center CPU market.

See, the artificial intelligence revolution has evolved in a major way over the past six months. At first, everything was about having the best graphics processing units (GPUs) to train large language models. Then the focus shifted to inference, and now those workloads are evolving again, from handling human-generated prompts to supporting continuous, agent-driven tasks.

While GPUs still have a critical role to play in the future of AI, the once left for dead central processing units (CPUs) are having a major moment. This CPU renaissance was confirmed when Intel reported two weeks ago. Intel CEO Lip Bu Tan said on the April 23 earnings call that the CPU-to-GPU ratio in AI racks used to be 1-to-8.

Analyst Views

But with the rise of agentics, it's more like 1-to-4 — and in the future, it could be parity, meaning 1-to-1. In other words, a lot more CPUs are needed than a few years ago. Advanced Micro Devices told a similar story on its earnings call Tuesday night.

Quantifying how big the CPU market is getting, AMD CEO Lisa Su said she now expects the CPU server total addressable market to grow at a greater than 35% clip annually, reaching over $120 billion by 2030. In an interview with Jim on CNBC on Wednesday, Su said , "Agents are really driving tremendous demand in the overall AI adoption cycle. " It's hard for a stock to go up three times on the same information, so we're not surprised to see Arm give back some of its recent parabolic gains.

However, we thought the post-earnings call solidified our thesis. Arm-based CPUs represent more than 50% share among top hyperscalers. AMD and Intel may claim they have the market share edge, but Arm pointed out on the call that the three largest AI accelerator providers pair their chips with Arm-based ones.

Financial markets are tracking the development closely as investors assess the likely impact.