Arm Holdings, a leading technology company, has seen its stock skyrocket after the release of its impressive third-quarter report. The company, which develops the Arm architecture used in various chips, has attracted attention with its strong performance and optimistic outlook on the impact of artificial intelligence (AI) on the demand for Arm chips.
Arm’s success lies in its ability to collect licensing and royalty fees from clients who use its architecture to develop their own chips. Its revenue growth has primarily been driven by licensing fees, but the company expects royalty revenue to become the main driver of growth in the future as the demand for Arm-based chips expands.
While Arm has traditionally dominated markets outside of PCs and data centers, it has been making progress in these areas. However, the valuation of Arm’s stock already reflects a significant amount of optimism, making it a risky investment. The stock’s price-to-earnings ratio is currently at 100, even higher than that of Nvidia, a leading AI accelerator manufacturer.
Despite the risks associated with Arm’s high valuation, there is a safer option for investors looking to bet on the company’s success and the AI revolution. Intel, another major player in the semiconductor industry, offers exposure to both areas and is currently trading at a lower value.
Intel’s turnaround plan includes leveraging its expertise in semiconductor manufacturing to build a foundry business that can compete with TSMC, the market leader. Although Intel’s own chips do not use Arm technology, the company has signed a deal with Arm to co-optimize its upcoming manufacturing process with the Arm architecture. This partnership positions Intel as a viable manufacturing partner for Arm-based chip designers, particularly those focused on cutting-edge chips for smartphones and AI servers.
Intel stands to benefit from the surge in demand for Arm-based chips as it manufactures a growing share of these chips. Additionally, Intel’s foundry business offers opportunities for those designing AI accelerators and other advanced chips. The company has locked in $10 billion of eventual revenue for its manufacturing services, and recent collaborations, such as the one with ASIC designer Faraday Technologies, further strengthen Intel’s position in the foundry market.
While Intel’s stock may not appear cheap based on earnings, it has been affected by factors such as a weak PC market and market share losses to AMD in the data center. As these headwinds fade and Intel launches new products, the company’s bottom line is expected to improve. With a massive long-term opportunity in the foundry business, Intel is poised to become a major player in the industry.
Investors looking for a low-risk way to bet on Arm’s success and the AI revolution should consider Intel as a viable alternative. Despite the challenges Intel currently faces, its manufacturing expertise and partnerships position it favorably in the market. This, combined with its discounted stock price, makes Intel an attractive option for those seeking exposure to these growth areas.
In conclusion, Arm Holdings has experienced a significant surge in its stock price following a strong quarterly report. While the company’s future prospects look promising, the stock’s sky-high valuation introduces a considerable amount of risk. As an alternative, Intel offers investors a safer way to benefit from Arm’s success and the potential of AI. Intel’s focus on building a foundry business and collaborations with Arm-based chip designers position the company well in the market. With its discounted stock price, Intel presents an attractive opportunity for investors seeking exposure to these emerging technologies.
