Arm listed on Nasdaq, commands a premium, but Nvidia still dominates the AI ​​market

Arm, a UK-based semiconductor design company, is listed on Nasdaq and currently trades at a premium compared to Nvidia. Nvidia’s stock price has soared this year, but Arm’s price-to-earnings ratio is significantly higher, at more than 170 times. However, hedge fund manager Dan Niles believes Nvidia is a better investment in the AI ​​market.

Niles points out that 75% of Nvidia’s revenue is generated by AI-enabled data centers. By contrast, the percentage of Arm’s revenue related to AI is less than 15%. Furthermore, Arm’s projected revenue growth is only 10%, a far cry from Nvidia’s estimated 170% growth for the current quarter. Niles warns that the balance between risk and potential reward is unfavorable when buying Arm stock.

Nvidia experienced a more than 7% decline in September, but Niles sees this as a healthy correction for the stock. He suggests that investors who previously missed out on Nvidia have an opportunity to buy at its current price-to-earnings ratio of 31 times lower. Given its growth rate, Niles believes Nvidia is reasonably priced for people interested in investing in AI.

Niles recommends that other AI companies, including Alphabet, Meta, Amazon, and Intel, should also consider entering the AI ​​market. These companies are seeing strong revenue growth from their AI initiatives. For example, Meta uses AI for targeted ads and recommendations, and Intel acts as a foundry for AI companies.

In conclusion, while Arm is recognized as a good company, Niles emphasizes that the current valuation is not favorable for investors seeking exposure to AI. Given that Nvidia continues to outperform the AI ​​market and offer better value, Niles says other AI companies to consider include Alphabet, Meta, Amazon, and Intel. .

Definition of terms:
– Price/earnings ratio (P/E ratio): A financial indicator used to evaluate a stock by dividing its market price by its earnings per share.
– Data center-led: Refers to companies whose sales are highly dependent on data center operations and services provided.
– Growth rate: A rate that shows how much a company’s revenue or profits will increase over a specific period of time.

Source: CNBC’s “Squawk Box Asia” interview with Dan Niles (Manager of Satori Fund)