After conquering the smartphone market, Arm Holdings (NASDAQ: ARM) has its sights set on PCs. The company collects royalties and licensing fees from chip designers using its IP, and the pricier the end product, the more money it tends to make. With more than 240 million PCs shipping last year, the PC market represents a lucrative opportunity.

Arm has already won over Apple. Apple made the switch from standard PC central processing units (CPUs) based on the dominant x86 architecture to custom Arm-based CPUs for its Mac computers a few years ago, a move that allowed the tech giant to unlock new levels of performance and efficiency. A software emulation layer was required to ensure that older Mac applications worked on the new systems, and the transition has largely been a smooth one.

With Apple hooked on Arm, the company is now turning to Windows PCs. Microsoft and Qualcomm are using the AI boom to pitch a new type of PC, the AI PC, and both companies are working to close the performance and efficiency gap with Apple. Qualcomm's new Arm-based PC CPUs will show up in Microsoft's upcoming Surface Pro and Surface Laptop, which promise extended battery lives and exceptional performance. Other companies, including Nvidia, are reportedly eyeing the PC chip market as well.

Arm has high hopes for its PC incursion. The company is reportedly aiming to win more than 50% of the Windows PC market within five years. That necessarily means stealing a considerable amount of market share from Intel and AMD. While Arm-based PC chips look like the real deal, that goal may be unrealistic.

What's a Qualcomm?

Here's the core problem Arm and its partners face: The typical laptop buyer doesn't know much about laptops. They know what Intel is. They might be familiar with AMD. They've probably never heard of Qualcomm.

If a typical laptop buyer walks into a Best Buy, they're not going to be making a fully informed decision that weighs the pros and cons of each option. They may not even know what RAM is, only that more of it is good. They're likely to go with something familiar.

For decades, there have been only two PC CPU providers: Intel and AMD. AMD began an epic comeback about seven years ago with the initial launch of its Ryzen CPUs, and each generation has brought significant improvements. Today, AMD's CPUs are great products that go toe-to-toe with what Intel has to offer. Despite this, AMD's share of the x86 laptop CPU market stands at about 20% today, and it's actually declined over the past couple of years.

An Intel-based PC is the familiar choice, and it's one that the vast majority of laptop buyers make. It's taken AMD seven years to reach a 20% market share, and that's despite the company being in the PC business for decades. Arm, Qualcomm, and other Arm-based CPU designers are starting from scratch.

Arm can still succeed

While Arm's goal of reaching a 50% market share within five years appears unrealistic, the company can certainly gain a solid foothold in the PC market and grow it over time. Qualcomm's chips appear to offer great performance and battery life, and Microsoft is fully behind the effort to make Windows on Arm a viable alternative.

Neither Intel nor AMD are sitting still, though. AMD recently announced its latest Ryzen AI laptop chips, which include substantial AI processing power, and Intel is set to launch its innovative Lunar Lake chips later this year. Arm's entry is forcing both companies to push the envelope, which will make massive market-share gains more difficult to achieve.

Five years from now, Arm will likely be generating meaningful revenue from Arm-based PC chips. But a 50% market share looks out of reach in that time frame.

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Best Buy, Microsoft, Nvidia, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Arm Holdings Wants 50% of the PC Market. It Probably Won't Happen was originally published by The Motley Fool