Arm Holdings plc (NASDAQ:ARM) shares fell on Thursday after giving up early gains as the company flagged supply constraints for its new AI chips and warned about potential weakness in the smartphone market, even after topping fiscal fourth-quarter earnings expectations.

Arm said demand for its AI data center CPUs remains strong, but the company has secured enough supply to meet only about half of current demand, limiting near-term growth potential.

However, the company executives highlighted accelerating AI-driven demand, expanding partnerships, and growing adoption of Arm-based infrastructure as the company positions itself at the center of the next wave of cloud and agentic AI computing.

Sees Agentic AI Driving Massive CPU Demand

Arm CEO Rene Haas said the shift from human-based AI queries to continuous agent-driven workloads is expanding the role of CPUs in AI infrastructure.

He explained that agentic AI workloads require CPUs to coordinate tasks, manage memory, enforce security, and orchestrate accelerators, creating a data center CPU opportunity exceeding $100 billion by 2030.

Haas added that Arm's AGI CPU, launched at the Arm Everywhere event, directly targets this market, delivering more than 2x performance per rack compared to x86 platforms and the potential to cut AI data center capital expenditure by up to $10 billion per gigawatt.

Haas said Arm now sees more than $2 billion in customer demand across fiscal 2027 and 2028 for the Arm AGI CPU, more than double the figure disclosed at launch.

He added that the company is working to secure additional wafer, packaging, memory, and testing capacity to support growing demand. CFO Jason Child said Arm still expects initial production revenue in the fourth quarter of the fiscal year while maintaining its long-term outlook of $15 billion in AGI CPU revenue and $10 billion in IP revenue by fiscal 2031.

Haas also stressed that AI infrastructure increasingly requires higher CPU core counts. He noted that Arm's AGI CPU already includes 136 cores and predicted future designs could scale to 256 or even 512 cores as AI orchestration workloads expand.

Expands Partnerships Across Cloud, AI And Infrastructure

Haas pointed to strong momentum among hyperscalers and AI companies adopting Arm-based infrastructure.

He said Meta Platforms Inc .(NASDAQ:META) serves as Arm's lead partner and co-developer on a multi-generation roadmap supporting AI workloads for billions of users.

He also highlighted deployments and partnerships involving SAP SE (NYSE:SAP), Cloudflare, Inc. (NYSE:NET), F5, Inc. (NASDAQ:FFIV), and SK Telecom.

Arm executives emphasized that major AI platforms increasingly rely on Arm-based CPUs.

Haas said NVIDIA Corp. (NASDAQ:NVDA), Amazon.com Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOGL) Google already use Arm CPUs as head nodes for accelerator systems, while companies including Cerebras, OpenAI, Rebellions, and Positron are adopting the Arm AGI CPU.

He added that Google paired its TPU 8t and TPU 8i systems with custom Arm Axion CPUs, while AWS continues scaling Graviton alongside Trainium and Nitro.

Microsoft Corp. (NASDAQ:MSFT) is also advancing its Arm-based Cobalt platform for Azure workloads.

Child added that Arm-based server chips deployed by hyperscalers continue driving rapid royalty growth, with data center royalty revenue more than doubling year over year.

He also noted that Arm maintains nearly 100% market share in data center networking chips such as DPUs and SmartNICs.

Bets On Long-Term Platform Expansion And Ecosystem Growth

Haas said Arm's strategy now combines traditional IP licensing, compute subsystems, and silicon products into a single compute platform and software ecosystem.

He described silicon as a new growth vector that complements, rather than replaces, Arm's existing IP business.

According to Haas, more than 50 companies support Arm's expansion into silicon, including ecosystem partners across manufacturing, EDA tools, software, and cloud infrastructure.

Child said Arm signed multiple strategic agreements during the quarter, including a long-term AI technology partnership with the Indonesian government and two next-generation CSS licenses covering smartphone and data center networking chips.

He added that annualized contract value grew 22% year over year, reflecting sustained licensing momentum.

Looking ahead, Arm executives expressed confidence in continued growth driven by demand for AI infrastructure.

Haas said Arm-based CPUs are becoming central to cloud performance, energy efficiency, and AI economics, while predicting Arm could become the largest CPU architecture in the data center market by the end of the decade.

Child added that the company expects around 20% royalty and licensing growth in fiscal 2027, supported by continued hyperscaler adoption and AI investment.

Arm Price Action

ARM Price Action: Arm shares were down 8.62% at $216.85 at the time of publication on Thursday, according to Benzinga Pro data.

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