IMPORTANT POINTS:
- Chip companies are booming thanks to the boost of artificial intelligence. In which stock should you invest?
- Arm recently debuted on the Nasdaq, while Nvidia is a company with an extensive history on Wall Street.
- Hedge fund manager Dan Niles explained why he prefers to buy Nvidia over Arm.
Chip companies have seen a big surge so far this year thanks to the momentum around artificial intelligence.
The iShares Semiconductor ETF (SOXX) has soared more than 35% in 2023, demonstrating the good momentum of the sector. However, competition is increasing.
In that sense, a debate was generated among investors about whether it is better to bet on Arm, a firm that recently debuted on the Nasdaq, or on Nvidia (NVDA), which has much more experience on Wall Street.
Nvidia shares have accumulated an increase of more than 201% so far this year, while Arm began trading on Thursday at around $55 and, this Monday, fell 7.4% to $56.25.
Still, it should be noted that Arm’s price-to-earnings ratio is now approaching 170 times, surpassing that of Nvidia, which develops graphics processing units for advanced applications.
The expert’s opinion on chip companies
Speaking with CNBC, hedge fund manager Dan Niles said he prefers to buy Nvidia over Arm at the moment.
The expert argued that 75% of Nvidia’s revenue comes from the data center, while less than 15% of Arm’s revenue comes from AI.
In addition, there is a big difference between the estimated growth of both companies: Nvidia plans to grow by 170% while the newbie Arm, just 10%.
Niles also highlighted that it is time to take advantage of buying other companies familiar with AI: Alphabet, Meta, Amazon and Intel.
“Those are all names you can buy at much better valuations than you can buy Arm, and I’m not saying Arm isn’t a great company. They are an absolutely fantastic company. They just aren’t fantastic value. And that is the fundamental difference,” Niles concluded.
