Rise of Arm: A Look at the Future in the Semiconductor Market

A few years ago, Nvidia attempted to acquire the relatively unknown company Arm Holdings. However, the deal fell through as legal proceedings over antitrust concerns dragged on. Following the failed acquisition attempt, Arm pursued an initial public offering and has been listed on the Nasdaq since last September. Since going public, Arm has climbed an impressive 138%, driven by the momentum surrounding artificial intelligence (AI). Despite this surge, I continue to see a bright future for Arm. I believe that Arm will significantly surpass Nvidia in the coming decade. The semiconductor market is composed of many different components. Arm dominates a specific market segment with its chip design for mobile devices, consumer electronics, and the Internet of Things. Its business strategy is based on licensing intellectual property and collecting royalties. Arm's architecture is deeply embedded in various applications, providing the company with enviable flexibility in new chip developments. Given its growing market share and strategic positioning in new chip-based devices, I see Arm as less susceptible to competitive pressure than Nvidia. Even though Nvidia leads the GPU market with its A100 and H100 chipsets, emerging competition poses significant risks. Technology giants like Microsoft, Alphabet, Tesla, Amazon, and Meta Platforms are developing their own chip designs and could challenge Nvidia's dominance. Stronger competition could weaken Nvidia's pricing power and slow revenue and profit growth. Moreover, Nvidia faces the risk of an investigation by the Department of Justice into its business practices due to its quasi-monopoly position. Because of these uncertainties, I view Arm as the better investment compared to Nvidia in the coming decade. While the stock is not a bargain, it appears to be an attractive opportunity in the long term.