"While Apple's AI initiatives get the spotlight, the real financial gain is going to this AI stock, not Apple."



One AI stock that emerged as a winner. Another way Arm wins. Before you buy stock in Arm Holdings, consider this:

While Apple shares were flat on the news, a key supplier jumped. Arm Holdings (ARM -0.81%), which designs Apple's CPU architecture, surged on the presentation, finishing Monday's session up 7%.

Importantly, Apple's new A18, which is powering the iPhone 16, will run on Arm's latest CPU architecture, the v9, which commands twice the royalties as the prior version, the v8.

Apple is also Arm's most valuable customer as the iPhone makes up roughly half of the company's revenue.

Of course, Apple will benefit from strong sales of the iPhone 16, but, according to those numbers, Arm stands to be an even greater beneficiary if the new iPhones are a hit.

If iPhone 16 units increase 10% from the iPhone 15, Arm's royalties from the iPhone would jump 120% as royalty rates will have doubled from the year before. If iPhone sales make up half the company's royalty revenue, then that alone would drive royalty revenue up 60% even if the rest of the business is flat.

Arm dominates the market for smartphone CPU architecture with greater than 99% market share. That's largely due to its power-efficient architecture, which helps preserve battery life, but the company also sees an increasing opportunity in the data center from the AI boom as its Grace CPUs are also used by Nvidia in the Grace Hopper and upcoming Grace Blackwell Superchips.

The same advantage Arm has over x86-based competitors like Intel and AMD also applies to the data center as AI applications demand huge amounts of energy, and running them as efficiently as possible will help companies save money. In fact, Applied Materials CEO Gary Dickerson recently said, "In our discussions with leading AI companies, they are telling us that reducing power-per-operation is now more important than increasing operations-per-second."

If Apple Intelligence does catch on, proving a larger market for AI devices, it could set off a supercycle of demand for Arm components in smartphones, the data center, PCs, and beyond.

Arm's momentum is already building with licensing revenue, a forerunner of royalties, up 72% in its most recent quarter. If the iPhone 16 takes off, Arm looks likely to cash in, and the stock has a ton of upside potential in AI beyond that.

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