It’s no secret that Nvidia has capitalised on the generative AI craze with their in demand high-powered GPUs.
The success of this “AI Super Chip” has made semiconductors the hottest sector within all of tech.
It’s also one of the reasons behind the hype for what many experts called the biggest initial public offering (IPO) in years.
It’s a company that’s been around for more than 40 years…
And just like Nvidia, they have huge potential as demand for their AI chips accelerate…
A new AI player becomes available to retail investors
On 14 September 2023, ARM Holdings listed on the Nasdaq at a price of $51 valuing the company at a lofty $54.5 billion.
Majority owned by Softbank, ARM is a British semiconductor design company best known for its mobile chips, specifically the ones that they have provided for Apple’s iPhones.
However, ARM’s architecture is used in nearly every smartphone chip.
And they boast major influence among chip companies, who rely on its technology to design and build their own chips…
So much so that ARM sold $735 million in shares to a group of strategic investors comprising Apple, Google, Nvidia, Samsung, AMD, Intel, Cadence, Synopsis, Samsung and Taiwan Semiconductor Manufacturing Company.
ARM has a big market to capitalise on
Just like many companies joining the bandwagon, ARM’s goal is to take advantage of the enormous potential of AI by expanding out of mobile circuitry.
It’s the explosive growth of the demand for high-powered hardware by data centres that’s driving the entire semiconductor industry. Complicated generative AI programs need banks and banks of high-end processors to run.
In a presentation to investors, Arm said it expects the total market for its chip designs to be worth about $250 billion by 2025, including growth in chip designs for data centres and cars.
Arm’s revenue in its fiscal year came to around $2.68 billion. So, the future growth potential for ARM is huge!
But for now, the company forecasts an 11% increase in revenue in 2023 and around a 25% increase in 2024.
So, should you invest in ARM?
Well, it’s never a good idea to invest in IPOs… And it’s an easy way to lose money.
After seeing a 19% jump after its first two days of trading, ARM’s price has come back down to earth, now up just 2.2% since offering.
Plus, at its current $53 billion valuation, Arm’s price-to-earnings multiple is around 135 based on the most recent fiscal year profit.
That’s much higher than Nvidia trading at 99 times earnings, which is already considered expensive.
So, I’d definitely wait for a more reasonable entry price – below $40 looks attractive.
For now, add ARM to your 2023 stocks watchlist.
PS. If you want to know what AI stocks to invest in now as well four other megatrends we see unfolding over the next five years, go here.
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