ARM vs. NVDA: Which AI Chip Designer is Worth Investing in?
- ARM
- NVDA
Arm Holdings plc ARM and NVIDIA Corporation NVDA are both major beneficiaries of the AI computing boom, with their technologies increasingly intertwined across data centers and next-generation computing platforms.
Nvidia dominates AI accelerators through its GPUs, while Arm provides the energy-efficient CPU architecture increasingly used alongside those accelerators. Nvidia itself relies on Arm-based CPUs in platforms such as Grace and Vera, while Arm is expanding further into AI infrastructure with its own AGI CPU. Both companies are therefore positioned to benefit from rising spending on AI servers, cloud infrastructure and power-efficient computing.
AI Momentum Balances Arm’s Execution Risks
For a semiconductor intellectual-property provider, durable growth depends on expanding its architecture across end markets, increasing the royalty earned per chip and converting long-term licenses into recurring revenues. ARM’s presence across cloud AI, edge devices and physical AI supports this framework. However, the investment case also depends on customer shipments, licensing timing and successful execution of its move into production silicon.
Arm’s first-quarter fiscal 2027 results demonstrated momentum. Revenues increased 22.4% year over year to $1.29 billion, surpassing the Zacks Consensus Estimate by 1.8%. Royalty revenues rose 22% to $715 million, while license and other revenues advanced 23% to $574 million. Non-GAAP earnings increased 28.6% to 45 cents per share and beat the consensus estimate by 12.5%.
Cloud infrastructure is becoming a growth engine. Data-center royalties more than doubled as hyperscalers expanded deployments of Arm-based processors. Neoverse adoption, Armv9 designs and increasing use of Arm technology in networking equipment broaden the royalty opportunity. Meanwhile, AI-enabled PCs, vehicles and robotics extend the architecture into markets, reducing Arm’s dependence on smartphones.
The Arm AGI CPU adds a monetization avenue beyond licensing. Demand now exceeds $2 billion across fiscal 2027 and fiscal 2028, and Arm has secured capacity supporting the $1 billion opportunity. Nevertheless, scaling production introduces manufacturing, supply-chain and execution risks that differ from its asset-light licensing model.
Arm generated $665 million in non-GAAP free cash flow, and collection and tax-payment timing aided the figure. Cost growth warrants attention: non-GAAP operating expenses increased 18%, while research and development expenses rose 20%. GAAP operating margin declined to 7.1% from 10.8%, even as the non-GAAP margin improved.
