Arm's AI Alliance: Redefining Data Center Power with OpenAI and Broadcom

Arm Holdings (ARM) shares surged 11% to $171.94 on Monday, driven by news of a strategic partnership with OpenAI to develop custom data center CPUs, as reported in a Blockonomi article. The collaboration, first reported by The Information, involves Arm's subsidiary under SoftBank and a broader deal with Broadcom, where OpenAI will design AI chips and Broadcom will handle manufacturing. This partnership positions Arm at the forefront of the AI infrastructure race, as demand for specialized hardware accelerates.

The stock's sharp rise, according to a StocksToTrade report, followed heavy options trading, with 55,814 call options exchanged—double the typical volume—and a put-call ratio of 0.14, signaling bullish sentiment. Analysts remain optimistic, with 18 "Buy" ratings and three "Hold" ratings, translating to a "Strong Buy" consensus. The average 12-month price target is $172.28, nearly aligning with the current price. Arm's market capitalization now exceeds $164 billion, surpassing SoftBank's book value despite the Japanese conglomerate owning a majority stake.

The partnership underscores Arm's pivot toward AI-driven computing; as noted by TS2 Tech, Arm's CPUs will handle general computing tasks alongside GPUs in OpenAI's servers, while Broadcom's chips focus on AI inference workloads. Production is slated for late 2026. This aligns with Arm's recent emphasis on AI-optimized architectures, such as its v9 design, which Qualcomm has adopted for next-generation smartphones.

Financially, Arm reported Q1 fiscal 2026 revenue of $1.05 billion, with royalty revenue rising 25% to $585 million, according to EconoTimes. However, the stock has faced volatility after mixed earnings in July, trading at a trailing P/E of 260. Upcoming Q2 results on November 5 will be a key catalyst. Meanwhile, SoftBank is arranging a $5 billion margin loan backed by Arm shares to fund additional OpenAI investments, further validating the partnership's strategic importance.

The AI chip market is intensifying, with competitors like NVIDIA and AMD also securing major deals; OpenTools highlights OpenAI's collaboration with Broadcom and Arm as part of a shift toward vertically integrated solutions, where companies design and manufacture proprietary hardware to optimize performance. This trend is expected to reshape data center infrastructure, with Arm's energy-efficient designs offering a competitive edge.

Investors are cautiously optimistic. While the stock's 23% gain over two weeks reflects strong momentum, its high valuation and reliance on AI demand pose risks. The Los Angeles Times notes that Morgan Stanley and Evercore ISI maintain price targets near $171–$178, suggesting limited near-term upside. However, the broader AI infrastructure boom, projected to grow 40% annually through 2027, could justify Arm's premium if it continues securing key partnerships.

The partnership also signals Arm's broader ambitions in AI. As reported by AP News, with Qualcomm's adoption of its v9 architecture and the Lumex AI-optimized platform, Arm is expanding beyond traditional licensing to influence end-to-end AI workflows. As OpenAI, Broadcom, and Arm finalize their 10-gigawatt compute plan by 2029, the semiconductor giant's role in shaping the AI era could solidify its market leadership.