Arm Holdings Surges as Data Centre Business Explodes Amid AI Spending Boom

Arm's Data Centre Pivot Powers Stock Surge

Arm Holdings shares surged nearly twelve percent on Friday, closing at one hundred and twenty-three dollars and seventy cents, as Wall Street turned its attention from smartphone headwinds to the chip designer's rapidly expanding data centre business.

The rally came two days after Arm reported fiscal third-quarter revenue of one point two four billion dollars, up twenty-six percent year-over-year and marking the company's fourth consecutive billion-dollar quarter. While the initial market reaction was muted due to concerns about memory shortages hitting smartphone sales, sentiment shifted decisively as investors weighed the company's surging cloud business against temporary mobile challenges.

Data Centre Revenue Doubles

CEO Rene Haas described the company's data centre business as "exploding" and predicted it could soon surpass handsets as Arm's largest segment. Data centre royalty revenue surged more than one hundred percent year-over-year, with Arm's Neoverse CPUs now surpassing one billion cores deployed across major cloud providers. Management expects Arm's share among top hyperscalers to approach fifty percent by year-end.

Every major cloud provider now deploys Arm-based custom processors, including AWS Graviton, Microsoft Cobalt, and Google Axion, reflecting a fundamental shift in data centre computing architecture.

Six Hundred Billion Dollar AI Spending Wave

The timing coincided with staggering capital expenditure announcements from major cloud providers. Amazon disclosed plans to spend two hundred billion dollars on capex in twenty twenty-six, while Alphabet guided between one hundred and seventy-five billion and one hundred and eighty-five billion dollars. Combined, the top hyperscalers are expected to spend roughly six hundred to six hundred and fifty billion dollars on infrastructure this year, with approximately seventy-five percent dedicated to AI-related investments.

Memory Shortage Creates Smartphone Headwinds

Despite the optimism, Arm acknowledged challenges in its traditional smartphone business. A global memory chip shortage, driven by manufacturers pivoting production toward high-bandwidth memory for AI data centres, is expected to constrain smartphone shipments through twenty twenty-seven. Global smartphone chip shipments are forecast to decline seven percent in twenty twenty-six, with device prices expected to rise as memory costs surge.