Both chipmakers are experiencing strong sales growth driven by demand for artificial intelligence (AI).
The AI trend has significantly boosted the performance of many technology stocks over the past year, including semiconductor industry leaders Nvidia (NVDA) and Arm Holdings (ARM). In 2024, Nvidia’s shares have increased by 144%, while Arm’s stock has risen by 91%.
Nvidia leads the market in providing semiconductors required for AI software, with its GPUs (graphics processing units) being widely deployed in data centers designed for cloud computing—essential for AI systems needing extensive computing power. On the other hand, Arm is a prominent player in mobile device technology.
According to a forecast by Statista, the AI market is projected to grow from $136 billion in 2023 to $827 billion by 2030. Both Nvidia and Arm are well-positioned to benefit from this growth. However, for those looking to invest in one of these companies, which AI stock might present a more favorable long-term investment?
The Case for Nvidia
Nvidia’s innovations in accelerated computing have led to significant demand for its semiconductor products, driven by the rush to build AI systems. The company introduced the GPU in 1999, revolutionizing computer processing. Recognizing the potential of GPUs in powering AI, CEO Jensen Huang delivered the world’s first AI supercomputer to OpenAI in 2016.
Since then, global organizations and national governments, including those of the United Kingdom and Japan, have increasingly adopted Nvidia’s latest GPUs for AI supercomputers. This surge in demand has resulted in impressive year-over-year revenue growth for Nvidia across several quarters.
Revenue Growth (Year-over-Year)
- Q2 2024: $30 billion (122%)
- Q1 2024: $26 billion (262%)
- Q4 2023: $22 billion (265%)
- Q3 2023: $18 billion (206%)
Nvidia’s financial health is robust, with total assets of $85.2 billion against total liabilities of $27.1 billion in its fiscal second quarter ending July 28. The net income for this period increased by 168% year-over-year to $16.6 billion.
Huang believes that all data centers will eventually transition to an accelerated computing model, akin to a modern Industrial Revolution. This shift could unlock nearly a $600 billion cloud computing market for Nvidia’s products.
The Case for Arm Holdings
Arm specializes in energy-efficient semiconductor chip designs, primarily used in mobile devices. With the rise of energy-intensive AI applications, the demand for Arm’s power-saving architectures has surged. This led to a 39% year-over-year sales increase to $939 million in fiscal 2025 Q1, marking the fourth consecutive quarter of record revenue.
Arm’s revenue model includes licensing its technology and collecting royalties from devices utilizing its designs. The growing demand for AI-related technology is expected to bolster these income streams. For instance, AI’s need for increased processing power has significantly raised the number of cores per chip, from eight cores per chip in 2016 to 192 cores now.
Management anticipates generating at least $3.8 billion in revenue for fiscal 2025, reflecting a substantial increase from the $3.2 billion recorded in fiscal 2024.
Financially, Arm ended fiscal 2025 Q1 with $7.9 billion in total assets compared to $2.2 billion in total liabilities, and its net income more than doubled to $223 million from the previous year’s $105 million.
Deciding Between Nvidia and Arm Holdings Stock
In comparing these two semiconductor leaders, Nvidia currently appears to be the superior investment for several reasons:
Firstly, Nvidia has a more favorable price-to-earnings ratio (P/E ratio) of 55, compared to Arm’s much higher P/E ratio of 360, indicating that Arm’s shares may be overpriced.
Additionally, since its 2023 IPO, Arm’s diluted earnings per share (EPS) have fluctuated despite its sales growth, whereas Nvidia’s diluted EPS has shown consistent growth.
Long-term Growth Outlook
Nvidia’s business is significantly driven by the expansive data center market, with data center revenue contributing $26 billion to its record $30 billion in fiscal Q2 revenue.
Conversely, Arm’s primary market remains mobile devices, predominantly smartphones. However, the largest smartphone market, China, is seeing slowing sales due to market saturation.
Nvidia’s strong position in the lucrative cloud market, consistent revenue and EPS growth, coupled with a better valuation, make it a more attractive long-term investment compared to Arm Holdings.
