Arm is aiming to win half of data center CPU market by year’s end

The big picture: The AI boom is significantly changing the enterprise and data center market. Arm predicts that chips based on its designs will soon amount to around 50% of CPUs used in data centers. According to Arm Senior VP Mohamed Awad, the company’s market share in this sector will grow by 15 percent over 2024.

Chips based on the Arm architecture used to play a marginal role in the data center business. However, things are changing fast and Arm expects substantial financial rewards thanks to the company’s key partners in the market.

Arm struggled to compete against the x86 enterprise leadership for nearly 20 years due to significant hardware infrastructure changes and the associated costs. Reuters notes that Arm CPUs have increased in popularity in data centers thanks to their lower power consumption levels compared to x86 chips made by Intel and AMD.

Compounding the problem are the growing energy requirements of AI processing. Cloud computing providers desperately seek alternatives, and software solutions are helpful. “We’ve gotten to the point where software is actually being developed for Arm first and foremost,” Awad said.

Nvidia is another major factor in this significant market evolution, as the GPU maker heavily relies on Arm’s chip architecture and IP. The Grace CPU is a custom-built solution that fully exploits the computing capabilities of the Blackwell framework.

Nvidia Grace’s features and benefits include better energy efficiency, ECC LPDDR5X memory for improved reliability, and a “tightly coupled” CPU and GPU system architecture.

Awad explained that chips designed for data centers must achieve higher complexity and efficiency to compete since Arm’s business model is primarily licensing-based. The company typically receives much greater aggregate royalty rates on higher-level designs than microchips for simpler devices and low-level consumer electronics.

The data center market is one of Arm’s key investments for the future. The Japanese-British chip designer had begun a substantial effort to differentiate its business, with management considering direct chip manufacturing as one solution. Arm is also in an antitrust legal battle with former business partner Qualcomm, though a victory is anything but guaranteed.