Arm Holdings CEO Rene Haas has confirmed the company is investing in developing its own chips, signaling a major shift from its traditional IP licensing model. The announcement came as Arm issued second-quarter forecasts that fell short of market expectations, sending shares down 8.65% in after-hours trading on Wednesday.

Haas described the company's upcoming chips as a “physical embodiment” of Arm's Compute Sub Systems (CSS) product line. “We are consciously deciding to invest more heavily—beyond just design—into building chiplets and possibly full solutions,” he told Reuters.

The move would position Arm in potential competition with some of its top customers, including Nvidia, Amazon, and Qualcomm, who rely on Arm's IP to design their own chips. Arm has reportedly been hiring engineers from these partners to support its in-house chip development.

Chiplets—smaller, function-specific building blocks for processors—are central to the strategy, which aims to integrate CPU, GPU, and CSS IP into complete physical systems. However, Haas declined to offer a timeline for when the new investments would yield profits or reveal specific product details.

Arm emphasized that not all R&D efforts will necessarily lead to commercial products, noting that full chip development could reduce margins without guaranteeing success. Advanced AI chips can cost more than $500 million just in silicon fabrication, with additional expenses for supporting server infrastructure.

Arm's in-house chip plans had already drawn scrutiny during a December 2024 legal dispute with Qualcomm, where internal documents presented in court showed that Haas had explored the idea of selling chips directly to customers—something he had previously denied.

In February 2025, the Financial Times reported that Arm was developing its own chip, with TSMC as the foundry partner and Meta potentially among the first customers.

This week's earnings report added further context. Arm reported $1.05 billion in Q1 revenue, just below the $1.06 billion consensus estimate, with adjusted earnings per share at $0.35, matching expectations. However, the company forecast Q2 revenue between $1.01 billion and $1.11 billion and EPS between $0.29 and $0.37—guidance that disappointed investors.

Analysts cited ongoing trade tensions and soft demand in the smartphone sector—where Arm holds a 99% market share—as added concerns. Morningstar expects Arm to remain dominant in smartphones, but with cloud and AI design wins becoming increasingly important revenue drivers.

Despite the near-term forecast miss, Arm's shares have surged around 150% since its 2023 IPO, reflecting strong investor interest in the company's expanding role in the AI era. Still, with its high valuation and a new strategy that could put it in direct competition with its own customers, Arm is entering uncharted territory.