The AI Chip Revolution: Nvidia and Arm Take Center Stage
The future of artificial intelligence (AI) is looking bright, with Grand View Research predicting a staggering 29% annual growth in AI chip sales through 2030. Two industry giants, Nvidia and Arm Holdings, are poised to reap the benefits of this surge. But which stock is the better investment?
Nvidia: The Accelerated Computing Powerhouse
Nvidia dominates the data center graphics processing unit (GPU) market, holding an impressive 98% share. Its CUDA programming model, introduced in 2006, has evolved into an unmatched ecosystem of software development tools for GPU programmers. The company’s recent expansion into networking gear, central processing units (CPUs), and software and cloud services has solidified its position as an accelerated computing company.
Nvidia’s latest financial results were nothing short of spectacular, with revenue jumping 122% to $30 billion and non-GAAP net income increasing 152% to $0.68 per diluted share. The company’s guidance for the third quarter is equally promising, with revenue expected to surge 80%. CEO Jensen Huang envisions a massive opportunity in modernizing $1 trillion worth of data centers from general-purpose computing to accelerated computing over the next four to five years.
Arm Holdings: The CPU Architecture Leader
Arm develops and licenses central processing unit architectures, providing development tools that simplify application development. Its energy-efficient architecture has secured a leadership position in mobile devices, with over 99% market share in smartphone processors. Arm is also gaining traction in data centers and personal computers, as its chips become increasingly powerful.
The company’s latest financial results were solid, with revenue increasing 39% to $939 million and non-GAAP net income rising 67% to $0.40 per diluted share. Arm’s CPUs are the foundation of Apple’s Intelligence, handling AI tasks on devices like iPhones and private data center servers. Major public clouds and computer manufacturers have also adopted Arm-based server CPUs and AI PCs.
Which Stock Should You Choose?
While both companies are well-positioned to benefit from the AI boom, their valuations tell a different story. Nvidia’s adjusted earnings are expected to grow at 35% annually through fiscal 2027, making its current valuation of 59 times adjusted earnings look fair. Arm, on the other hand, is expected to grow at 27% annually, but its current valuation of 107 times adjusted earnings appears expensive.
For patient investors, Nvidia’s current price may be a reasonable entry point. However, Arm’s high valuation may warrant caution, and investors may want to consider trimming their positions or waiting for a more attractive entry point.
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