Bank of America’s AI bull case on British semiconductor and software design company Arm is straightforward:

The mechanics underlying such a call are really strong. As Arm-based CPUs transition from Nvidia’s GB200 to Google’s Axion and Microsoft’s Cobalt, data-center revenue is growing by around 2 times year over year.

At the same time, Mix is doing actual work: dollars per core increase from approximately $0.50 to $1.50 on CSS sales, while core counts increase from 72 to 128+. This is a simple multiplier that can increase royalties per socket, even if unit growth stops.

But the fine print is important for the stock.

SoftBank, which owns most of Arm, is now anticipated to provide around $178 million every three months, which is over 16% of all sales. Without the extra boost from linked parties, BofA says management’s FY26 projection would have missed the mark.

Opex is increasing to pursue its greater potential, and that tension sets up the following part.

As GB200, Axion, and Cobalt grow, ex-SoftBank licensing will continue to increase, and CSS will continue to push the $/core up.

This will enable the market to pay a higher multiple for Arm’s “AI tollbooth.” If not, dependency on the parent and the risk of overspending now might limit the upside, regardless of how promising the data center appears.

Arm data-center royalties: Why more cores mean more cash

The data center is giving Arm a lot of short-term impetus. In the September quarter, sales there were nearly four times higher than they were in the same quarter last year.

It’s simple to understand why: Hyperscalers are replacing x86 CPUs with their own Arm CPUs (Google Axion, Microsoft Cobalt), and Nvidia’s GB200 ramp is making it possible to add more Arm cores to the rack.

The change in mix is just as essential as the number of units going up. For CSS-style transactions, BofA claimed that pricing per core are going up from around $0.50 to $1.50 or more, and the number of cores per CPU is going up from 72 to 128 or more.

That’s a basic story about the material. Before you install more sockets, each one is worth more to Arm.

Quick royalty math (illustrative):

  • Legacy scenario: ~72 cores × $0.50 = $36 royalty content per CPU
  • New mix scenario: ~128 cores × $1.50 = $192 royalty content per CPU

That little increase shows how royalties may mount up without making huge guesses about how many servers will be sent. It also explains why Arm may grow faster than end-market units, even if it is still careful about which customers move to CSS and higher-rate v9 IP.

Source & full story: The Street