Transcription
What's happening inside? Arm is we are shifting away from being largely known for smartphones to being around the cloud and data centers, where in a few years, that's our largest business by far. And in five years, it'll be orders of magnitude larger than what we do in smartphones for the first time. Arm designing its own chips, its own CPUs, the whole package, and you're working with Matter for this. How significant is that for this company as a strategy?
I think it's very significant. When we looked at the opportunity, particularly in the data center with the growth of AI, but more specifically agentic AI, and agentic AI quadruples the demands on CPUs. We look at two things. Number one, this is a market that's heavily underserved at the moment. And number two, customers are asking us, "Would you deliver and build a chip for us?" So, to your point, yes, we now have our first product. It's Arm's product. It's the Arm AGI CPU, designed by Arm, built by TSMC, sold to customers like Meta or SAP or Cloudflare, OpenAI, a litany of customers that we've announced, and the demand has been extremely strong.
What is the potential size of this new revenue stream, of this new market? When we look at the royalties in our traditional business model associated with the cloud and AI business, it's about a $3 billion TAM. When we look at the potential of this product line, maybe stretching out four or five years, it's north of $100 billion. So, it is a it is profoundly different in terms of the scale. It puts us in a whole different zip code.
Semiconductors have increasingly become a tool of geopolitics as well. How challenging does that make your role as CEO of a company that has that global scope? Five years ago, maybe, maybe a little bit less, wasn't something we worried about. We may have had people inside Washington or inside working with people at at Number 10 to make them aware of the technology. But it wasn't something that was, you know, top on the radar, you know, visiting Washington or getting to know the folks inside DCMS, inside the UK. That was not something that a CEO that you had to high on your priority list of things to do. That's all changed.
Do you think governments understand where the real leverage is in the chip stack? I think they're increasingly learning that. I would say ten years ago, not so much, but they've certainly added lots of capability in terms of people. If you look at the US government, in particular, in the current administration, they've added David Sacks, who's the AI Tsar, and under David's team, he's put a tremendous amount of people, capability, and people to to go off and learn that. You know, same thing under Peter Kyle and then Liz Kendall in the UK.
And you're stewarding this technology that underpins billions of devices. Do you, do you personally have to feel the weight of that, of that responsibility at that moment? What do you think? Wow. When you're in it on a day-to-day basis, you don't really think about that kind of scale. But sometimes when I when I step back and when we're talking amongst the teams, we're preparing some materials for a for a launch, and we try to communicate the scale of what Arm does. We come up with the number of 350 billion chips. And people like to talk about, well, how many chips does a certain person use? 350 million chips. There's 117 billion humans that ever lived on Earth, ever. And we're three times that number. That scale is is is enormous.
Yeah. What are the fascinating parts of the Arm story is is the nature of the business. So headquartered, of course, in Cambridge, United Kingdom, majority owned by SoftBank, publicly listed here in the US. How do you, how do you navigate having to meet quarterly earnings with massive, massive sessions, grand sweeping visions of how this kind of tech plays out?
Yeah. I have a fortunate job in some senses in that SoftBank, Masa is a 90% owner of Arm, so I have investor meetings quite frequently with my chief shareholder. But he's very long on Arm, hasn't sold a share since he went public, is very, very long on on the potential. So it helps it helps make my job in some ways an easier time in the sense that he has a long-range vision as to I technology we always know is is a long, long game. It's not a real quarterly game. So it allows me some freedom to think about the long term without having a y cadre of investors who worry about what's going on inside the quarter. Thankfully, the quarters have been very good, and we've met and or raised guidance nearly every quarter since we've gone public.
What's going on with Stargate, OpenAI, Oracle? That they seem to be pulling back on some of their commitments around Stargate, which is this massive infrastructure commitment for the US, but also outside the US as well. Yeah, it's starting to falter. I'm concerned about what's going on on that. Not at all. I mean, we kind of SoftBank just put a large investment into OpenAI of the last of the last round. They're going to be using a lot of that cash. Look for more compute. OpenAI is a magnificent company, and I think their growth potential is literally unbounded. Compute is what will limit them. So they're needing more and more compute. There's been a lot of written about Stargate, but Stargate is a complex program. I think the noise made around the Stargate things stumbling has been a little bit overblown.
Apple is a big customer, big client, plenty of Arm. Has Apple lost the race, do you think? Ready or are they going to be fast follow-up? What's your, what's your take too? Too early to tell. We are we are still in very early days of of this AI race.
Where do you stand on the question of of AI and jobs and a company like, are you going to be in five, ten years' time? You can have more employees or fewer? The way I think about AI eliminating jobs is when you think about, again, let's use that genetic AI as an example, right? And gentle an agent can go off and run a job or run a piece of work for you. And one might argue that, well, that's going to eliminate jobs because all that work is now being done by an agent. But as long as there are people coming up with creative ideas and are imaginative about how to grow, what not, what more can be done, what new product could I design things for? You just happened a lot faster. So inside Arm, we are pushing it heavily. I'm pushing it very, very heavily not to lose apex. It is to design products faster and to design better products quicker and innovate and have more products because right now, my my limitation for developing great products is the amount of engineers that we have. That is my biggest limitation. And right now, it hasn't solved that. And it's again, it's not to replace the engineers because we've got no shortage of ideas. I've got I've got tons and tons of ideas that we talk about in our leadership team meetings where they we look at and gosh, we'd love to do X if only. So I'm much more an optimist on this, and I think so long as companies can come up with creative ideas on what to do and build, air is going to suit us quite just.
Well, I spoke to ASML CEO Christophe Fouquet a few months ago, and he said he was pretty damning about Europe's place in the semiconductor industry. He says Europe has real no real capabilities to compete with the US and with China. Do you agree? Where can Europe compete when it comes to semiconductors? I think Europe has fallen behind, you know, in this space. I think it when you look at the the amount of innovation that takes place inside either the US or China, Europe has has fallen behind. I think some of it isn't actually at the big company level. I think some of it is at the startup company level. In other words, companies that can get funding, early funding, do innovation, attract really smart people to go off and build companies and be entrepreneurial. For whether the reasons are there's not enough capital, or the capital is not organized well enough, or there's something that is breaking. Founders go move elsewhere. So I don't think it's a lack of talent. I think it's a lack and some lack of the infrastructure to nurture the companies to start in Europe and stay in Europe.
When it comes to the data center story, when do you think you'll be able to declare victory? What for you is success? You've again shifted Arm to have a laser-like focus on data centers, to build out that market. When can you call that a win, do you think? Well, on one level, I think it's a win now in that we've got real customers. Matter as happy, Cloudflare, Cisco, as I mentioned. So on level zero, it's a win. Going forward, I think there's lots of opportunity to do to do much, much, much more. The aperture for the opportunity for Arm has just got much, much, much wider. I mentioned north of $100 billion for this AG chip CPU product. But if we think about the broader market, it could be north of $1 trillion dollars that we could address.