Executive Summary / Key Takeaways

• Arteris, Inc. is a critical enabler in the rapidly evolving semiconductor industry, providing essential on-chip interconnect IP and SoC integration automation software that manages data flow in complex System-on-Chip (SoC) designs and chiplets.
• The company's advanced technologies, particularly the AI-driven FlexGen Smart NoC IP, offer significant quantifiable benefits such as up to 10x engineering productivity and improved power, performance, and area (PPA), establishing a strong competitive moat.
• Arteris is experiencing robust growth, with Q3 2025 revenue of $17.4 million (up 18% year-over-year) and record Annual Contract Value (ACV) plus royalties of $74.9 million (up 24% year-over-year), driven by increasing adoption in AI, automotive, and enterprise computing.
• A significant industry trend of outsourcing system IP to commercial vendors is accelerating due to increasing design complexity and a scarcity of skilled engineers, directly benefiting Arteris's business model and long-term royalty streams.
• Despite a history of net losses and exposure to macroeconomic headwinds and geopolitical risks, Arteris maintains a solid liquidity position with $56.2 million in cash and investments as of Q3 2025, and management projects positive free cash flow for the full year 2025.

The Foundation of Future Silicon: Arteris's Strategic Imperative

Arteris, Inc. stands at the nexus of modern semiconductor design, providing the foundational "plumbing" that enables complex System-on-Chip (SoC) designs and the burgeoning chiplet architectures to function efficiently. Incorporated in 2004, Arteris has evolved into a leading provider of System IP, specializing in on-chip interconnect fabric technology and Networks-on-Chip (NoC) IP. This technology is crucial for managing the intricate communication pathways and IP block deployments within semiconductors, connecting diverse components like processors, memories, AI/ML accelerators, and I/O subsystems. The company's overarching strategy is to deliver faster, more efficient, and lower-cost solutions, addressing the escalating complexity of SoC designs that now extend into multi-die systems.

The industry landscape is characterized by relentless technological advancement, particularly in Artificial Intelligence (AI) and Generative AI, which are profoundly reshaping semiconductor design and development. This transformation, coupled with the increasing sophistication of electronic systems, has unlocked significant growth opportunities for Arteris. The company's historical journey, marked by strategic acquisitions like Magillem Design Services S.A. in 2020 and an equity investment in Transchip Technology Nanjing Co., Ltd., has consistently aimed at enhancing its core offerings and expanding its market reach. Arteris's public listing in October 2021 further solidified its position, providing capital for continued innovation and global expansion, including a new engineering and customer support center in Kraków, Poland.

Technological Edge: The Heart of Arteris's Moat

Arteris's competitive advantage is deeply rooted in its differentiated technology, which directly addresses the critical challenges of modern chip design: performance, power, area (PPA), and time-to-market. The company's core offerings include:

• FlexNoC and Ncore Interconnect IP: These Network-on-Chip (NoC) IP products are the backbone of on-chip communication. FlexNoC is a non-coherent NoC IP, while Ncore provides cache-coherent NoC IP, essential for multi-core processor designs. The physically aware FlexNoC 5, introduced around mid-2023, has seen rapid adoption, with over 75% of FlexNoC customers choosing this advanced version by Q4 2024. This version leverages advanced node and placement information to enable up to 5x faster physical coverage while supporting best-in-class PPA.
• FlexGen Smart NoC IP: A significant innovation, FlexGen, announced in Q4 2024, is an AI-driven automation technology designed to revolutionize semiconductor designs. It builds upon the silicon-proven and physically aware FlexNoC 5 IP to automate the creation of high-performance NoC designs. FlexGen reduces manual iteration by over 90%, providing expert-level NoC topologies in hours or days instead of weeks. This translates to up to 10x engineering productivity, lower power consumption, and improved overall PPA. By Q3 2025, AI applications accounted for over half of Arteris's licensing dollars, reflecting FlexGen's growing adoption from data centers to the smart edge.
• SoC Integration Automation Software (Magillem and CSRCompiler): These software solutions complement Arteris's interconnect IP by automating the configuration of NoC interconnects and streamlining the integration and assembly of all IP blocks into an SoC. The latest generation of Magillem register management automation software, released in Q1 2025, provides a single source of data for SoC and chiplet development, mitigating silicon failure risks associated with outdated specifications and interpretation differences across design teams. Magillem Packaging, launched in Q2 2025, further automates IP packaging to simplify and accelerate the assembly of silicon chiplets and chips.

These technological differentiators provide tangible benefits for investors. The significant productivity gains and PPA improvements offered by FlexGen, for instance, directly contribute to higher ASPs for Arteris's products and enhance its competitive moat by making its solutions indispensable for complex, time-sensitive designs. The company's continuous investment in R&D, which is expected to increase in absolute terms in the near term, is aimed at maintaining this technological leadership and securing long-term royalty streams. Management anticipates that the average selling price (ASP) for complex SoCs using Arteris's technology could reach $1 million by 2026, driven by the increasing amount and value of system IP per project.

Competitive Landscape and Strategic Positioning

Arteris operates in a highly competitive segment of the global semiconductor industry, facing both larger, diversified players and specialized third-party IP providers. Key direct competitors include Synopsys (SNPS), Cadence Design Systems (CDNS), and Arm Holdings (ARM). These companies possess substantial financial, technical, and R&D resources, often offering broader EDA ecosystems or dominant processor IP.

Arteris differentiates itself through its specialized focus on interconnect IP and SoC integration automation. While Synopsys and Cadence offer comprehensive design platforms, Arteris's solutions, such as FlexNoC and Ncore, are designed for high configurability and efficiency, potentially offering lower overhead in specific NoC applications. This specialization allows Arteris to be more agile in addressing emerging market needs, particularly in AI and chiplets. The company's "silicon-proven" track record, with an installed base having shipped approximately 3.9 billion SoCs, underscores its reliability and reduces customer risk, a critical factor given that "if the system IP doesn't work, the chip doesn't work."

A significant strategic advantage for Arteris is its "neutral IP provider" stance, supporting various CPU architectures like ARM, RISC-V, and x86. This flexibility allows it to integrate seamlessly into diverse customer ecosystems, as demonstrated by its expanded collaboration with Alibaba Damo Academy for RISC-V CPU cores and its partnership with MIPS for a preverified RISC-V reference platform. This contrasts with competitors like Arm, which primarily focuses on its own processor architectures.

The industry is witnessing an accelerating trend of major customers outsourcing their system IP needs. This shift is driven by the increasing complexity of SoC designs, the high cost of maintaining internal NoC teams, and a scarcity of qualified hardware engineers. Arteris benefits directly from this trend, as its solutions offer a compelling economic proposition, often providing a "10x payback from taking an Arteris license versus doing the design internally." This outsourcing trend is expected to transition the market from two-thirds internal IP development to two-thirds commercial IP over time.

Recent customer wins highlight Arteris's competitive strength. Altera, upon spinning out from Intel (INTC), selected Arteris for its primary system IP requirements, including Ncore, FlexGen, and Magillem, for its next-generation FPGA and SoC FPGA solutions. AMD (AMD), a global leader in high-performance computing, licensed FlexGen for AI chiplet designs and subsequently ordered additional incremental licenses in Q3 2025 after extensive evaluation against competitive alternatives. These wins demonstrate Arteris's ability to compete effectively against larger players by offering superior, specialized technology.

Financial Performance and Liquidity

Arteris has demonstrated robust financial performance, particularly in its key growth metrics, despite operating in a capital-intensive industry and having a history of net losses. For the three months ended September 30, 2025, total revenue reached $17.4 million, an 18% increase year-over-year. For the nine months ended September 30, 2025, total revenue was $50.4 million, up 19% from the prior year period. This growth was primarily fueled by new license arrangements with existing customers and the addition of new customers.

The company's Annual Contract Value (ACV) plus royalties, a key performance indicator, hit a record high of $74.9 million as of September 30, 2025, representing a substantial 24% year-over-year increase. Remaining Performance Obligations (RPO), another forward-looking metric, also reached a new high of $104.7 million, growing 34% year-over-year. This strong RPO indicates significant contracted future revenue.

Variable royalty revenue, a crucial long-term driver, increased by 28% year-over-year for the three months ended September 30, 2025, and 37% for the nine months ended September 30, 2025. Trailing 12-month variable royalties were 36% higher year-over-year in Q3 2025, growing at roughly twice the rate of licenses. This growth is increasingly diversified, moving from a single major customer in 2020 to five major customers contributing a greater royalty stream by Q3 2025, alongside approximately 50 smaller players. The automotive market continues to be a significant contributor, accounting for about half of total royalties, while enterprise computing is emerging as the fastest-growing royalty segment, driven by AI workloads.

Despite these revenue achievements, Arteris reported a GAAP net loss of $9.0 million for Q3 2025 and $26.2 million for the nine months ended September 30, 2025. The company's accumulated deficit stood at $163.1 million as of September 30, 2025. Operating expenses have increased, with R&D up 6% and Sales & Marketing up 38% year-over-year in Q3 2025, reflecting strategic investments in headcount and technology development. However, General & Administrative (G&A) expenses have remained broadly flat on a non-GAAP basis for over three years, demonstrating prudent cost management and contributing to a 15% improvement in non-GAAP operating expense as a percentage of revenue year-to-date compared to 2023.

In terms of liquidity, Arteris maintains a solid position. As of September 30, 2025, the company held $56.2 million in cash, cash equivalents, and investments, with an additional $17.2 million in long-term investments, and no financial debt. Net cash provided by operating activities for the nine months ended September 30, 2025, was $3.6 million. Free cash flow was positive $2.5 million for Q3 2025. Management believes existing resources are sufficient to meet liquidity requirements for at least the next 12 months, though additional capital may be sought for future opportunities.

Outlook and Risks

Arteris's management has provided an encouraging outlook for the remainder of 2025, projecting continued growth despite broader economic uncertainties. For the fourth quarter of 2025, the company expects ACV plus royalties of $74 million to $78 million and revenue of $18.4 million to $18.8 million. The full-year 2025 guidance was updated, with ACV plus royalties expected to exit the year at $74 million to $78 million (an increase of $1 million from prior guidance) and revenue of $68.8 million to $69.2 million (also an increase of $1 million). Non-GAAP operating loss is guided between $12.5 million and $13.5 million, with non-GAAP free cash flow projected to be positive $2.5 million to $5.5 million. This guidance is underpinned by the expectation of accelerated outsourcing of system IP by major customers and the positive impact of new product adoption, particularly FlexGen.

However, the investment thesis is not without risks. Arteris operates in a highly cyclical semiconductor industry, susceptible to rapid technological change, product obsolescence, and fluctuations in supply and demand. Geopolitical tensions and trade restrictions, especially concerning China (which accounted for 24.4% of revenue for the nine months ended September 30, 2025), pose significant risks to international operations and revenue streams. The company's revenue concentration among a small number of key customers also presents a vulnerability, as the loss or reduced sales from any major licensee could substantially impact financial results.

Furthermore, the company's history of net losses indicates that achieving sustained profitability remains a key challenge. While management is focused on controlling G&A expenses, continued significant investments in R&D and sales and marketing are necessary to maintain technological leadership and capture market share. Currency exchange rate fluctuations, particularly against the Euro, can also impact operating expenses, as approximately 40% of expenses are denominated in foreign currencies. The long lead times for royalty generation (3-6 years from design start to mass production) mean that current design wins will take several years to fully materialize into significant royalty revenue, requiring patience from investors.

Conclusion

Arteris, Inc. is strategically positioned to capitalize on the profound shifts occurring in the semiconductor industry, particularly the explosive growth of AI and the increasing adoption of complex chiplet architectures. Its differentiated System IP technology, exemplified by the innovative FlexGen Smart NoC IP, provides critical solutions that enhance engineering productivity, optimize PPA, and reduce design risks for leading technology companies. This technological leadership, coupled with a growing trend of outsourcing system IP, forms the core of Arteris's compelling investment thesis.

While the company faces inherent risks associated with its competitive landscape, macroeconomic volatility, and its journey towards sustained profitability, its strong revenue growth, expanding customer base, and diversified royalty streams signal a robust long-term opportunity. Arteris's ability to consistently secure design wins with top-tier customers and its strategic collaborations within the ecosystem underscore its pivotal role in powering the next generation of silicon. Investors looking for exposure to the foundational elements of the AI and advanced computing revolution should recognize Arteris's potential as a key enabler, with its technological prowess and strategic market positioning driving its future trajectory.