Shares of Arm Holdings surged 5.2% to $313.74 on May 22, extending a stunning run that has added roughly 50% to the stock in just five trading sessions, after Nvidia's blowout earnings turned the spotlight on Arm-designed processors powering the next wave of AI data centers. The question now: can a licensing company sustain a valuation this extreme?
Nvidia Just Put a $20 Billion Price Tag on Arm-Based CPUs
Nvidia CFO Colette Kress said on the May 20 earnings call that the company aims to become "the world's leading CPU supplier," that its new Arm-based Vera processor "opens a brand new $200 billion" market, and that Nvidia expects $20 billion in CPU revenue this year alone.
Vera is built on custom Arm cores and delivers up to 1.5x faster performance and 2x better power efficiency per watt versus older x86 chips. For Arm, which collects a small fee — a royalty — on every chip shipped using its designs, that $20 billion pipeline translates directly into revenue growth.
Data Center Royalties Are Doubling, and Wall Street Is Repricing the Stock
Arm's Q4 fiscal 2026 results showed licensing revenue of $819 million, up 29% year-over-year, with data center royalty revenue more than doubling.
Jefferies analyst Janardan Menon noted Arm has reached a 50% share of the hyperscaler CPU market, and Vera deployments alongside continued growth from other cloud chips could push that share toward 60%.
Jefferies raised its Arm price target to $290, projecting roughly 20% annual growth in royalties and licensing.
The Valuation Demands Near-Perfect Execution
A price-to-earnings ratio around 279x and price-to-sales near 47x mean any slip in guidance or hint of a demand pause can trigger fast drawdowns.
Menon also flagged that the royalty rate on Vera is estimated to be lower than on the prior chip, so Arm needs higher volumes just to keep up.
Management has guided for its own new data center chip to generate $1 billion in fiscal 2028 revenue, ramping to $15 billion by fiscal 2031 — but only $1 billion of a $2 billion demand backlog has secured supply chain capacity so far.
An FTC Probe Adds Regulatory Risk to the Bull Case
The U.S. Federal Trade Commission has notified Arm of an antitrust investigation into its licensing practices , examining whether the company's dominance gives it unfair pricing power. Any forced concessions on royalty rates — Arm's core revenue engine — would directly erode the growth story investors are paying record prices for today.