Easy to see why. Since ChatGPT launched in late November, Nvidia, Super Micro Computer, and other tech stocks have soared. Arm Holdings (NASDAQ: ARM) is an intriguing AI opportunity. The stock went public and rose on its fiscal third-quarter earnings report in February as the Arm benefited from the AI boom.
Rene Haas noted, "The AI wave drove licensing growth as these new devices require Arm's performant and power-efficient compute platform." Arm stock rose 84% this year—could it make you a millionaire? Let's examine what makes Arm unique in the semiconductor industry and how it can succeed in the AI era.
Most semiconductor stocks create chips and outsource production, or they are fully integrated, handling design, manufacturing, and distribution. Arm's model differs. The company licenses its chip designs to other chipmakers for more complex components. Popular AI chips like the Grace Hopper 200 Superchip from Nvidia use Arm architecture.
Arm has 2 revenue streams. It makes money by licensing its items and collecting royalties on products with its designs. Customers sold 7.7 billion Arm-based semiconductors in Q2. That business strategy has been successful, giving Arm upfront licensing cash and long-term royalties.
That's why Arm stock rose in its Q3 earnings report despite not reporting the same revenue growth as Nvidia and Super Micro Computer. After Arm's licensing revenue rose 18% in the quarter, royalties should rise in the following quarters.
Why Arm wins AI Arm chips are power-efficient. Since it started making batteries, the company has concentrated on power conservation. Since 99% of premium cellphones use Arm's architecture, Arm-based chips are popular.
That strength makes Arm a popular choice for data center AI chips, where power efficiency is important because AI models require a lot of computational power. Arm works closely with Nvidia, and its architecture is in Nvidia's latest Blackwell GPU, which should boost Arm's revenue.
Can Arm make you rich? As the AI boom tailwinds begin, Arm appears to have several years of solid growth ahead. However, investors should be mindful of one major risk. Arm is one of the most expensive tech stocks, with a price-to-sales ratio of about 45. If the business misses expectations, Arm shares may plummet.
I wouldn't shun Arm stock because of its value, but investors should restrict their growth expectations. Given its $130 billion market worth and present price, the stock may make you a millionaire, but you'd need $250,000 or more.
Arm is an AI stock worth acquiring due to its power efficiency technology, tight partnership with Nvidia, and AI model demands. Though its price limits its upside, the company is likely to give significant returns to buyers now at a premium valuation.
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