Arm vs AMD: R&D Spend, Growth, and Ratio

Electronics. Pexels Image.

At their core, Arm Holdings and AMD represent two entirely different philosophies of the semiconductor industry, separated by how they monetize technology.

Arm operates on an intellectual property (IP) licensing model, functioning essentially as the “architect” of the chip world. Arm does not manufacture, package, or sell physical pieces of silicon. Instead, its engineers spend years developing highly power-efficient processor architectures and instruction sets. They then monetize this research by charging tech companies upfront or subscription fees to access these blueprints, followed by a recurring royalty fee — usually a small percentage of the final chip price — every single time a customer physical manufactures and ships a device containing Arm technology.

AMD, on the other hand, operates as a “fabless” chipmaker, functioning as a product design and sales company. Rather than selling abstract blueprints, AMD designs complex, high-performance physical hardware like Ryzen CPUs and Instinct AI GPUs using the high-performance x86 architecture. Because owning microchip factories is astronomically expensive, AMD outsources the actual physical fabrication of its silicon to advanced independent foundries like TSMC. AMD makes its money the traditional way: by managing a physical supply chain and selling completed, tangible microprocessors directly to computer manufacturers, data center operators, and retail consumers.

Despite the vastly different business models, both tech giants splash huge amounts of money on research and development, ensuring they remain at the absolute cutting edge of global semiconductor innovation.

In this article, we will look into the research and development (R&D) of both companies, comparing their R&D spending figures and several R&D ratios, consisting of R&D to revenue, R&D to operating expenses, and more.

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For other key statistics of Arm and AMD , you may find more resources on these pages: ARM key stats and AMD key stats.

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Definitions

To help readers understand the content better, the following terms and glossaries have been provided.

R&D incurred by Stock-Based Compensation (SBC): R&D incurred by Stock-Based Compensation (SBC) represents the portion of a company’s Research and Development expenses that is paid to engineers and scientists in the form of equity (stock options, restricted stock units/RSUs, or shares) rather than cash.

Instead of writing a standard payroll check, a tech company like Arm or AMD will grant its R&D talent equity that vests over time. By regulatory accounting rules (under both US GAAP and IFRS), the value of these stock grants must be calculated and recorded as an official operating expense on the income statement, filed directly under the R&D department.

Why Companies Use SBC in R&D

For tech giants and semiconductor firms, R&D talent is their most valuable asset. Companies heavily rely on SBC for three strategic reasons:

• Conserving Cash: Developing next-generation AI architecture or advanced chip nodes requires billions of dollars. Paying engineers partially in stock allows companies to keep their cash reserves intact for physical investments or manufacturing costs.

• Talent Retention: Stock grants typically come with a vesting schedule (e.g., a 4-year period). If an engineer leaves early, they forfeit their unvested shares. This “golden handcuff” keeps top-tier R&D talent from jumping to competitors.

• Aligning Incentives: When engineers own a piece of the company, they are directly incentivized to innovate and create successful products that will drive up the stock price.

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Insight & Summary of Arm and AMD’s R&D Comparison

The following analysis consolidates the trends observed across Arm and AMD in R&D comparison, consisting of R&D spending, growth, and several ratios for the 2021–2025 period.

• R&D Spending: Scale Divergence, Trajectory Convergence AMD outspends ARM by approximately 3x in absolute R&D dollars throughout the dataset — $8,091M (FY2025) versus $2,776M — reflecting AMD’s larger revenue base and broader product portfolio spanning CPUs, GPUs, and AI accelerators. The FY2023–FY2025 averages of $6,806M (AMD) and $2,275M (ARM) confirm this structural gap. However, the growth trajectories have converged: ARM’s FY2023–FY2025 average R&D growth of 37.8% nearly doubles AMD’s 17.5%, driven by ARM’s FY2023 surge (+74.7%) as the company invested aggressively ahead of its IPO and expanded its AI-related IP development programmes.

  AMD’s FY2022 spike (+75.9%) — the largest single-year growth in either company’s dataset — was acquisition-driven, primarily reflecting the Xilinx consolidation ($1B+ incremental R&D expense). ARM’s continued FY2025 acceleration (+34.0%, versus AMD’s +25.3%) suggests ARM’s R&D investment is compounding on a higher base and may sustain at elevated levels as CSS (Compute Subsystems) and AI-optimised architecture development intensifies.

• R&D to Revenue: The Structural Divide The R&D-to-revenue ratio is where the two companies diverge most profoundly. ARM’s FY2023–FY2025 average of 56.4% is more than double AMD’s 24.8%, reflecting the fundamentally different business models: ARM is an IP licensing company whose product is its architecture, making R&D essentially the cost of goods in a functional sense; AMD is a product-selling semiconductor company where R&D represents a proportionally smaller share of a larger and more diversified revenue stream.

  ARM’s ratio has expanded from 36.8% (FY2021) to a FY2023 peak of 61.2% before moderating to 56.4% (FY2025), confirming that ARM is running an R&D-first business model where the revenue payoff from licensing lags the investment cycle. AMD’s ratio has held in a narrower 21–26% band throughout the dataset, consistent with a mature product company maintaining competitive R&D intensity without allowing it to dominate the P&L structure.

• R&D to Gross Profit: Convergence at the Capital Allocation Level The R&D-to-gross-profit ratio is arguably the most meaningful comparative metric because it normalises for the different revenue/margin profiles of the two businesses. Here the gap narrows considerably: ARM’s FY2023–FY2025 average of 58.5% versus AMD’s 51.3% — a 7.2 percentage point difference, versus the 31.6 percentage point gap in the revenue ratio.

  This convergence reveals that both companies are committing a comparable share of their gross economic value-add to R&D reinvestment. ARM’s gross profit ratio exceeded AMD’s in all five years of the dataset, peaking at 64.3% (FY2023) against AMD’s 56.1% — confirming ARM’s higher reinvestment intensity even at the gross profit level. The trend for AMD is declining (from 47.2% in FY2022 to 47.2% in FY2025 — essentially flat with a FY2023 peak), while ARM’s ratio has been more volatile but remains on a higher structural level.

• R&D to OpEx: ARM’s R&D Dominance of Cost Structure ARM’s FY2023–FY2025 R&D-to-OpEx average of 68.6% versus AMD’s 59.4% confirms that R&D constitutes the overwhelming majority of ARM’s operating cost structure — meaning sales, general and administrative expenses and other operating items are comparatively minor. ARM’s ratio has expanded from 51.3% (FY2021) to 71.2% (FY2025), meaning nearly three-quarters of every operating dollar ARM spends goes to R&D. AMD’s ratio has been more stable in the 53–60% range, reflecting a product company that requires proportionally more commercial and operational infrastructure alongside its R&D investment. Both companies are R&D-dominant in their cost structures; ARM simply more so.

• R&D Attributable to SBC: A Transparency and Quality Signal The share of R&D expense attributable to share-based compensation reveals meaningfully different equity cost structures. ARM’s FY2023–FY2025 average of 30.7% — meaning nearly one-third of reported R&D expense is non-cash SBC — substantially exceeds AMD’s 16.6%. ARM’s SBC concentration in R&D reflects both the post-IPO equity award cycle and Silicon Valley-norm compensation for AI and architecture engineers.

  For investors, high SBC concentration in R&D has two implications: (1) it inflates reported R&D expense relative to cash R&D spend — ARM’s “cash R&D” is approximately 69% of reported R&D, versus AMD’s 83%; and (2) it creates a recurring dilution mechanism that must be tracked against buyback capacity. AMD’s SBC as a share of R&D peaked in FY2022 (13.9%) likely reflecting Xilinx integration retention awards before normalising to 15.9% (FY2025).

• Structural Takeaway: Arm and AMD represent two distinct R&D investment models within the semiconductor sector. AMD is a product-scale compounder — spending more in absolute dollars but maintaining R&D as a disciplined 24–26% of revenue, with relatively stable ratios and moderate SBC concentration. ARM is an IP-compounding machine — spending proportionally more of every revenue dollar (56%), gross profit dollar (58%), and operating dollar (69%) on R&D, with higher SBC concentration reflecting its engineering-talent-driven model.

  The key analytical tension in the ARM case is whether its sustained 56%+ R&D intensity represents a necessary investment in future licensing and royalty streams, or whether it reflects structural inefficiency in converting R&D spend into revenue at scale. The FY2025 revenue acceleration ($4.9B, +22.8% growth) alongside 56.4% R&D intensity suggests the former — ARM is investing ahead of an AI-era architectural proliferation cycle that should expand royalty volumes as v9 architecture penetrates data centre, automotive, and AI edge markets over the next 3–5 years.

The table below combines all key R&D comparison metrics between Arm and AMD into a single view for the latest three fiscal years.

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Arm vs AMD: Research And Development Expenses

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Arm vs AMD: R&D Spending Growth

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Arm vs AMD: R&D To Revenue Ratio

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Arm vs AMD: R&D to Gross Profit Ratio

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Arm vs AMD: R&D To Total Operating Expenses Ratio

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Arm vs AMD: R&D % attributable to SBC

The definition of R&D attributable to SBC is available here: R&D attributable to SBC.

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References and Credits

1. All financial figures presented were obtained and referenced from the companies’ respective annual and quarterly reports published on the following investor relations pages:

– ARM Financial Reports
– AMD Investor Relations

2. Pexels Images.

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Disclosure

We may use artificial intelligence (AI) tools to assist us in writing some of the text in this article. However, the data is directly obtained from original sources (usually the quarterly and annual reports) and meticulously cross-checked by our editors multiple times to ensure its accuracy and reliability.

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