Arm Holdings Plc. (ARM) stock climbed nearly 2% in premarket trading on Tuesday following a report from Reuters detailing the company’s plans to significantly raise royalty rates and explore designing its own chips.

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The British chip designer, whose intellectual property is critical to companies like Apple (AAPL), Qualcomm (QCOM), and Microsoft (MSFT), has reportedly been discussing long-term plans to increase royalty rates by up to 300%, according to documents released in a trial last month in which Arm aimed unsuccessfully to secure higher royalty rates from Qualcomm.

The documents show that Arm anticipates this strategy to generate a projected $1 billion in additional annual revenue over the next decade, largely driven by increased fees for its latest Armv9 computing architecture.

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They also revealed that Arm has considered creating its own chip designs.

Historically, Arm has focused on licensing blueprints that its customers use to develop chips. However, internal discussions and trial documents suggest a potential pivot toward manufacturing complete chips or chiplets — smaller modular components for processors.

Arm's plans for a significant business model shift date back to at least 2019, with former CEO Simon Segars and current CEO Rene Haas advocating for higher royalty rates.

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A presentation by Haas in February 2022, part of the documents shown at trial, suggested that selling chips or chiplets could help Arm capture more value in the semiconductor market, potentially competing with some of its largest customers.

This comes after another Reuters report suggested that SoftBank and Arm are planning to acquire server chip provider Ampere as Arm explores its “strategic options.”

Screenshot 2025-01-14 083044.png — Arm Holdings Plc. Sentiment and Message Volume on Jan.14 as of 8:30 a.m. ET | Source: Stocktwits

However, on Stocktwits, retail sentiment around Arm Holdings remained muted in the ‘neutral’ zone even as chatter improved marginally to ‘normal’ from ‘low’ levels, a day ago.

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Some retail investors expressed optimism that Arm’s strategy could significantly boost revenue over the long term.

Others, however, were skeptical, questioning the feasibility of adding $1 billion in annual revenue given the competitive landscape.

The stock’s recent upward momentum follows a slight dip earlier this week after President Joe Biden introduced new restrictions on chip exports. Despite this, Arm's shares remain a strong performer, having gained 95% over the past year.

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