ARM is a bull thesis on AI infrastructure driven by royalty growth and new chip demand, offset by margin pressure from vertical integration.

ARM stock should be another big winner here. Nvidia's current Grace CPUs have 144 ARM cores each and almost 2.5 million of them have already shipped. Each one pays ARM royalties.

ARM's data center royalties more than doubled year-over-year and their own server chip, the aptly named AGI CPU, already has over $2 billion in customer demand with Meta Platforms as their lead partner.

One obvious risk is that ARM now has their own wafer and manufacturing costs that they never had when they only licensed their designs to other companies. So, their overall margins should naturally drop.

AMD, ARM, and Nvidia cover most of the CPUs inside AI racks. ARM even collects royalties on the cores inside the custom chips of Amazon, Google, and Microsoft.