We recently published a list of the 8 Best AI PC Stocks to Buy Now. Since Arm Holdings Plc (NASDAQ:ARM) ranks 8th on the list, it deserves a deeper look.
When the AI revolution began with the launch of ChatGPT, no one would have thought that down the road it would bring a huge growth catalyst for the PC industry, notorious for its cyclical nature and unpredictability. Fast forward to today, everyone is talking about PCs equipped with AI-focused equipment capable to process generative AI workloads. But in just a matter of few months why did the market feel the need for AI PCs? It all boils down to costs. GPT-4 costs $0.03 per 1,000 tokens for prompts and $0.06 for completion according to Microsoft’s estimates. Consider millions of users prompting LLMs from their phones and computers. The costs of scaling such systems are not feasible. That’s why the market thought allowing users to process AI-intensive workloads natively instead of using the Cloud is the future. And that caused the AI PC boom. Tech market analyst firm Canalys says AI PC shipments are expected to soar to 170 million in 2027, from 25 million in 2022. That would be a 60% share of the total PC market. The firm also expects AI PC shipments to double from 2023 to 2024 and double gain from 2024 to 2025.
Canalys also expects vendors to ship 205 million AI-capable PCs in 2028, representing a CAGR of 44% from 2024 through 2028.
For this article we scanned Insider Monkey’s database of 919 hedge funds and picked 8 AI PC stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A robotic arm holding a semiconductor chip, emphasizing the precision and quality of the company’s production equipment.
Arm Holdings Plc (NASDAQ:ARM)
Number of Hedge Fund Investors: 29
Goldman Sachs said in a report last month that the biggest beneficiaries of the AI PC wave include Arm Holdings Plc (NASDAQ:ARM), in addition to some other companies.
UK-based semiconductor company Arm Holdings Plc (NASDAQ:ARM) is positioned well to benefit from the rise of AI PCs. Arm CEO Rene Haas said at the COMPUTEX 2024 event in Taiwan that the company plans to ready 100 billion Arm devices for AI across the globe. Arm’s moat lies in the fact that major companies are using its architecture to develop their own chips to cut reliance on chip makers like Nvidia and AMD. For example, Alphabet Inc. (GOOG) earlier this year said ARM-based Axion CPUs will be available for Google Cloud customers later this year. Media reports also say Microsoft was planning to launch ARM-powered Azure Cobalt CPU for Azure customers. Amazon’s CPU Graviton4 SoC for AWS clients is also ARM-based. On June 12, Reuters reported that MediaTek is developing an Arm-based personal computer chip that will run Microsoft’s Windows operating system.
However, since Arm Holdings Plc (NASDAQ:ARM) is still linked to the processors market that depends on the PC and smartphone industry (unlike NVDA, AMD which are focusing on GPUs), the skeptics have voiced concerns over the sustainability of its growth. Arm Holdings Plc (NASDAQ:ARM) has a Price/Sales ratio of 40, much higher than peers and even more than high-growth software players like Palantir. Its Price/Cash Flow ratio is 96, which represents a rather unrealistic growth expectation. The stock’s Forward P/E ratio of 103.09 is also much higher than the industry average of 30 and dwarfs that of NVDA and AMD.
As of the end of the first quarter of 2024, 29 hedge funds tracked by Insider Monkey reported owning stakes in Arm Holdings Plc (NASDAQ:ARM).
Overall, Arm Holdings Plc (NASDAQ:ARM) ranks 8th on Insider Monkey’s list titled 8 Best AI PC Stocks to Buy Now. While we acknowledge the potential of Arm Holdings Plc (NASDAQ:ARM), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Arm Holdings Plc (NASDAQ:ARM) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.