The so-called "SaaSpocalypse," or the sharp sell-off in software stocks in recent days, didn't happen in a vacuum.
Investors are responding to a real threat from AI start-ups like OpenAI and Anthropic, and Anthropic's Claude Code, in particular, seems to have set off alarm bells in Silicon Valley.
Semianalysis, a well-respected blog following the semiconductor industry, just declared Claude Code, Anthropic's AI coding tool, to be the inflection point in Agentic AI, and predicted that Claude Code will be responsible for more than 20% of daily commits, or code changes, in GitHub by the end of the year, up from 4% currently. It also said that this could be a pivotal moment similar in AI to the one when ChatGPT first went public.
The upshot of Claude Code's impact is that the most prominent figures in coding now believe that manual is dying, being replaced by "vibecoding," or writing code through natural language prompts. In other words, it should dramatically accelerate the development and deployment of AI agents, or AI tools that can run independently according to an objective, handling tasks and workflows normally done by a human.
Image source: Getty Images.
Who wins from the growth of Agentic AI
Plenty of companies are angling for a piece of agentic AI, but one overlooked company that looks poised to benefit from the shift is Arm Holdings (ARM 4.15%), which is best known for licensing instruction sets for CPUs.
Thus far in the AI boom, Nvidia has gotten much of the attention and the business as GPUs are vital for AI training, but, according to CFO Jason Child, CPUs will handle the bulk of the workloads in agentic AI. In an interview with The Motley Fool, Child explained that "Agentic AI requires a significant increase in CPUs because CPUs are agents," handling the orchestration and doing things like talking to other agents. In other words, CPU demand could rise dramatically as agentic AI takes off, and Arm is already seeing some of those tailwinds in the data center.
Management said on the earnings call that data center royalty revenue more than doubled year-over-year, and the company now expects its data center business to surpass mobile as its largest category in a few years.
That should reassure investors about Arm's future growth potential, especially after the company just guided to slower revenue growth in the fiscal fourth quarter, after a strong third-quarter earnings report.
NASDAQ: ARM
Key Data Points
Is Arm a buy?
Arm stock is expensive, trading at a price-to-earnings ratio around 100 based on generally accepted accounting principles (GAAP) profits, but the company has a lot of levers to pull to grow profits.
In addition to increasing demand for CPUs from agentic AI, Arm will also benefit from increasing royalty rates as more of its revenue comes from newer products like Armv9, its most recent CPU architecture, and compute subsystems (CSS), which is a more advanced starting point for chip design.
With its data center business doubling and agentic AI ready to take off, there's still a lot of upside potential for Arm.
