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Semiconductor companies can earn money from an AI chip design in several ways: sell chips or larger systems, license design IP and collect royalties when chips ship, or sell the software, custom IP, and engineering services used to create and validate chips. These approaches can overlap. The company that designs a chip may also rely on outside foundries and packaging partners to make it.
Where revenue can enter the chip value chain
A chip design is not automatically a chip sale. Revenue depends on what a company sells and to whom: an IP license to another chipmaker, a finished processor to a hardware supplier, a software license to a user, or engineering work to a customer building a custom design. A customer may buy through an OEM, ODM, integrator, or distributor rather than directly from the designer.
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- Design access: A customer licenses processor or other semiconductor IP, or hires a provider for design tools and engineering support.
- Manufacturing: A chip company can arrange for a foundry to produce wafers and for partners to assemble, test, and package the chips. The designer does not necessarily own a fabrication plant.
- Commercial delivery: The resulting design may be sold as a chip, integrated into a module or larger system, or used in a customer’s own product.
- Ongoing monetization: Depending on the agreement, revenue may also come from per-chip royalties, software licenses, maintenance, or services.
These are different commercial paths, not a single standard payment schedule. Contract terms, royalty rates, customer prices, and margins for individual AI-chip designs are not established by the company filings cited here.
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How the main business models differ
| Model | What the customer receives | How the provider earns revenue | Documented example |
|---|---|---|---|
| Chip or system sales | A processor, accelerator, networking component, module, subsystem, or—in some cases—a rack-scale system. | Sales of products, sometimes bundled with other hardware and services. | NVIDIA describes a Data Center platform combining processors, interconnects, software, systems, and services. It says customers often receive offerings as rack-scale systems, subsystems, or modules. NVIDIA’s fiscal 2026 filing |
| IP licensing and royalties | Permission to use processor or other chip-design IP in a customer’s products. | An access fee for licensed designs, followed by per-unit royalties when chips using the IP ship. | Arm describes both an upfront access fee and royalties on substantially all chips shipped using its products. Arm’s fiscal 2026 filing |
| Design software and semiconductor IP | Electronic-design software, semiconductor IP, emulation hardware, maintenance, or a combination. | Product and maintenance revenue, which may include software and IP licenses as well as hardware and maintenance. | Cadence reports product and maintenance revenue as a category that includes these offerings. Cadence’s 2025 filing |
| Custom engineering and services | Engineering work, customized IP, or cloud solutions combining software, hardware, and services. | Services revenue; the specific payment schedule depends on the agreement and is not stated as a universal model. | Cadence identifies engineering services, fixed-fee customized IP, and cloud solutions among its services. Cadence’s 2025 filing |
| Software around the hardware | Software, libraries, APIs, SDKs, AI models, application frameworks, or separately licensed products. | Some software is part of the platform; separately paid licenses can provide another revenue stream. | NVIDIA identifies paid licenses for NVIDIA AI Enterprise and vGPU, while describing other software as part of its broader Data Center platform. NVIDIA’s fiscal 2026 filing |
Why IP licensing can pay both before and after a chip ships
Arm illustrates how a company can monetize designs without selling the finished chip itself. A customer pays for access to licensed Arm designs; after a chip is designed and manufactured using Arm products, Arm receives a royalty for shipped units. Arm says royalties have typically been calculated either as a percentage of a chip’s average selling price or as a fixed amount per unit. The amount can also vary with the products included in a design, so there is no single royalty rate that applies to every Arm license.
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Because a chip or platform may ship for years, royalties can continue over time, and a design may be reused in later products. That recurring potential is distinct from the initial license fee; the filing does not establish one payment schedule or rate for all customer agreements. Arm’s filing describes its licensing and royalty model.
What happens when the designer does not manufacture the chip
Designing a processor and physically fabricating it are separate activities. NVIDIA says it uses foundries including TSMC and Samsung for wafer production, with subcontractors involved in assembly, testing, and packaging. AMD likewise describes using third-party foundries for wafer production and external partners for assembly, testing, marking, and packaging. These filings document the arrangements of those companies; they do not mean every semiconductor company outsources manufacturing in the same way.
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In an outsourced-production model, the chip designer can still sell the resulting product, but it depends on suppliers for manufacturing and packaging. The design company’s revenue model—such as product sales, licensing, or services—should not be confused with the separate question of who makes the silicon. NVIDIA’s filing and AMD’s filing describe their respective supplier arrangements.
How reported revenue differs from AI-chip revenue
Company and segment totals are not automatically measures of revenue from AI chips alone. AMD reported $34.6 billion in company-wide net revenue for fiscal 2025, up 34% from $25.8 billion in fiscal 2024. Its Data Center segment recorded $16.6 billion in fiscal 2025, up 32% from $12.6 billion in fiscal 2024. That segment includes AI accelerators, but also server CPUs, GPUs, DPUs, AI NICs, FPGAs, and adaptive SoCs; AMD attributed the increase primarily to demand for fifth-generation EPYC processors and Instinct MI350 Series GPUs. Neither the company total nor the segment total is an AI-chip-only figure. AMD’s 2025 Form 10-K
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Cadence provides a different kind of comparison: it sells tools and services used in chip design, rather than reporting these figures as chip sales. The company reported $5.297 billion in total revenue for 2025, of which $4.822 billion (91%) was product and maintenance revenue and $475 million (9%) was services revenue. Product and maintenance includes software and semiconductor-IP licensing, emulation hardware, and related maintenance, so it should not be read as sales of AI chips. Cadence’s 2025 Form 10-K
Revenue is also not profit. For context, AMD reported a 50% corporate gross margin for fiscal 2025, compared with 49% in fiscal 2024. That is a company-wide measure, not an AI-chip margin; AMD attributed the increase primarily to product mix and reported approximately $440 million in net inventory and related charges associated with U.S. export controls on MI308 data-center GPUs. Its fiscal 2025 research-and-development expense was $8.1 billion, up 25% from $6.5 billion in fiscal 2024, with the increase primarily due to higher employee-related costs and headcount supporting its AI strategy. AMD’s 2025 Form 10-K
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What customers and investors should compare
Two AI chip designs can reach the market through different business models, so comparing them only by a company’s headline revenue can obscure what is actually being sold. Useful questions include:
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- Who pays? The chipmaker using licensed IP, a hardware maker buying components, a systems customer, or an organization licensing software?
- When can revenue recur? A design-access fee or engineering engagement is different from royalties linked to units shipped or recurring software and maintenance arrangements.
- How integrated is the offer? A chip sale differs from a platform that may combine compute, networking, software, systems, and services.
- What does the reported figure include? Check whether it covers the whole company, a product category, a segment, or a specific licensed product. Segment totals can combine AI chips with other products.
For licensed designs in particular, Arm lists price, performance, energy efficiency, customization, quality, software availability, support, brand recognition, and financial strength among factors customers may consider. Those are comparison criteria, not a universal ranking of chip suppliers. Arm’s filing
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