Arm’s biggest customers are also backing a rival chip design — here’s what you need to know
Dado Ruvic | Reuters
With Arm slated to start trading on the Nasdaq on Thursday, investors are considering the potential upsides — and downsides — of investing in the company.
The British chip designer itself flagged several risks in its IPO prospectus, ranging from its China business to geopolitics, but one potential threat has gained traction as its listing nears.
It’s called RISC-V, pronounced “risk five” — a rival chip design that is backed by some of Arm’s own customers.
While analysts told CNBC it’s not an immediate threat, Arm itself warned that if it gains traction, it could pose a competitive risk.
What is RISC-V?
To understand RISC-V, let’s consider what Arm actually does. Arm designs what’s known as an instruction set architecture (ISA) for chips known as processors or central processing units (CPUs). These chips can be thought of as the brain of an electronic device.
Arm’s ISA is effectively the blueprint for processors that other companies, from Apple to Qualcomm, base their chips on.
Arm charges these companies licensing fees to use its technology to build their own chips. It also gets royalties when these chips are produced and go into end devices. Arm’s designs underpin processors in 99% of the world’s smartphones.
RISC-V, meanwhile, is an entirely different instruction set architecture. RISC stands for reduced instruction set computer.
The main difference is that RISC-V is open-source, meaning it’s free to use.
“If RISC-V-related technology continues to be developed and market support for RISC-V increases, our customers may choose to utilize this free, open-source architecture instead of our products,” Arm said in its IPO prospectus.
Is RISC-V gaining traction?
RISC-V in recent years has gained support from some of the world’s biggest technology companies, many of which are also Arm customers.
Google, Samsung, Qualcomm and Nvidia, for instance, are part of a consortium formed in 2020 to develop RISC-V-based technologies.
Arm warned that if this development is successful, there could be a viable alternative to its architecture.
“Although the development of alternative architectures and technology is a time-intensive process, if our competitors establish cooperative relationships or consolidate with each other or third parties, such as the recently announced joint venture focused on RISC-V, they may have additional resources that would allow them to more quickly develop architectures and other technology that directly compete with our products,” Arm said in its IPO prospectus.
Support for RISC-V was “galvanized” after Nvidia proposed to buy Arm for $40 billion in 2020, according to technology researcher Richard Windsor, founder of Radio Free Mobile.
He suggested that other players were worried that if a major customer like Nvidia controlled Arm, it could be a disadvantage to some of Nvidia’s rivals.
The proposed takeover “raised a lot of hackles in the industry” and some Arm customers are “starting to think twice” about their dependency on the company, Windsor told CNBC this week.
“Maybe we should have a second source just in case things start not going in our direction, or we have problems with Arm,” he added, in reference to the thinking among some Arm customers.
Is RISC-V a threat to Arm?
The general consensus is that, right now, RISC-V doesn’t pose a major threat to Arm. That’s because the technology is currently far inferior to Arm’s offering.
“The issue with RISC-V is it’s much more immature. It doesn’t have the same level of support for more advanced designs,” Peter Richardson, research director at Counterpoint Research, told CNBC.
“RISC-V is quite far away from being at that leading edge, but for some workloads not at the cutting edge, then RISC-V can work quite well.”
One of Arm’s big successes is its huge customer base of major tech players. This has allowed Cambridge, England-based company to build an “ecosystem” of companies that rely on its technology — an advantage that RISC-V doesn’t have.
“Whenever you devise software that runs on one Arm, it will run on all the others as well,” Herman Hauser, founder of Acorn Computers, the company behind the first Arm chip, told CNBC’s “Squawk Box Europe” on Thursday. “So I think Arm will continue to retain its dominant position.”
However, there are fears that Chinese companies in particular could view RISC-V as a cheaper — and more appealing — alternative, particularly if Arm increases its prices.
“If Arm raises its prices, what are chip designers in China going to do? They’re probably going to go for the free version. I wouldn’t be surprised if China really scales up on RISC-V,” Cyrus Mewawalla, head of thematic intelligence at Global Data, told CNBC this week.
U.S. President Donald Trump speaks to reporters near Air Force One at the the Lehigh Valley International Airport on August 03, 2025 in Allentown, Pennsylvania.
Anna Moneymaker | Getty Images
After months of speculation, U.S. President Donald Trump has divulged more of his semiconductor tariff plans, but his latest threats might raise more questions than answers.
On Wednesday, Trump said he will impose a 100% tariff on imports of semiconductors and chips, but not for companies that are “building in the United States.”
As semiconductors represent an over $600 billion industry at the heart of the modern digital economy, any potential tariffs hold massive weight.
However, experts say the President has yet to provide key details on the policy, which will ultimately determine their full impact and targets.
“It’s still too early to pin down the impact of the tariffs on the semiconductor sector,” Ray Wang, research director of semiconductors, supply chain and emerging technology at The Futurum Group, told CNBC.
“The final rule is likely still being drafted and the technical details are far from clear at this point.”
Big players win?
One of the biggest questions for chip players and investors will be how much manufacturing a company needs to commit to the U.S. to qualify for the tariff exemption.
The U.S. has been working to onshore its semiconductor supply chain for many years now. Since 2020, the world’s largest semiconductor companies such as TSMC and Samsung Electronics have committed hundreds of billions of dollars to building plants in the U.S.
Speaking to CNBC’s “Squawk Box Asia” on Thursday, James Sullivan, Managing Director and Head of Asia Pacific Equity Research at J.P. Morgan, said this could mean most major chip manufacturers receiving exemptions.
If this is the case, the policy could have the effect of “continuing to consolidate market share amongst the largest cap players in the space,” Sullivan said.
Indeed, shares of major Asian chip companies like TSMC, which has significant investments in the U.S., rose in Thursday morning trading following Trump’s announcement. Early this year, TSMC announced it would expand its investments in the U.S. to $165 billion.
Shares of South Korea’s Samsung and SK Hynix — which have also invested in the U.S. — were also trading up after a Korean trade envoy reportedly said on radio that the duo would be exempt from the 100% tariffs.
An exemption on what?
Beyond the question of exemptions, many other aspects of the potential tariffs remain unclear.
Speaking on CNBC’s “Squawk Box Asia,” on Thursday, Stacy Rasgon, senior U.S. semiconductor analyst at Bernstein, noted that most of the semiconductors that enter the U.S. come inside consumer goods such as smartphones, PCs and cars.
For example, in 2024, the U.S. imported $46.3 billion of semiconductors — only about 1% of all U.S. imports, according to the Information Technology and Innovation Foundation.
While Rasgon said tariffs on these imports may be manageable, broader tariffs would be harder to deal with.
“What we don’t know with [Trump’s] comments on tariffs, is it just raw semiconductors? Are there going to be tariffs on end devices? Are you going to be looking at tariffs on components within end devices?,” Rasgon asked.
The confusion and questions around semiconductor tariffs were brought to the forefront after the U.S. Department of Commerce started a national security investigation of semiconductor imports in April, just as the sector was exempted from Trump’s “reciprocal” tariffs.
The vague language from the Trump administration — though not invoked in the president’s latest proclamations — could theoretically be used to apply broad tariffs to an enormous segment of the electronics supply chain. It’s also unclear on the extent that semiconductor materials and manufacturing equipment used to manufacture chips would fall under the tariffs.
Complex supply chains
Potential tariff strategies could also be complicated by the intricate and interdependent nature of the semiconductor supply chain.
Rasgon gave the example of American chip designer Qualcomm, which sends their designs to TSMC to be manufactured in Taiwan and then imported to the U.S.
“Does that mean those [chip imports] would not be tariffed, because they’re made at TSMC, and TSMC is building in the U.S.?… I don’t know. Hopefully that’s how it would be,” he said.
Another large buyer of semiconductors in the U.S. are cloud service providers like Amazon Web Services and Google, which are essential to power Washington’s AI plans.
According to a recent report from ITIF, semiconductors contribute $7 trillion in global economic activity annually by underpinning a range of downstream applications including AI and “big data.”
In a potential sign of American companies seeking to move their chip supply chains into the U.S., Apple CEO Tim Cook, alongside Trump at the White house Wednesday, announced that it will be supplied chips from Samsung’s production plant in Texas.
The company also announced an additional $100 billion in U.S. investments, raising its total investment commitments in the country to $600 billion over the next four years.
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