NVIDIA vs. Arm Holdings: Which AI Chip Designer Has an Edge?

Core Insights - NVIDIA Corporation (NVDA) and Arm Holdings Plc (ARM) are pivotal players in the semiconductor industry, particularly in the context of artificial intelligence (AI) growth [1][2] - NVIDIA is recognized for its dominance in the GPU market, while Arm is gaining traction with its AI-optimized CPU architectures [1] NVIDIA Overview - NVIDIA is central to AI computing, with significant demand from data centers, gaming, and autonomous vehicles [3] - In Q1 of fiscal 2026, NVIDIA's data center revenues surged 73% year-over-year to $39.1 billion, indicating robust business strength [3][11] - The company’s new GPU platforms, Hopper 200 and Blackwell, are rapidly adopted, enhancing performance for AI workloads [4] - Despite facing export restrictions that led to a projected loss of $10.5 billion in sales from China, NVIDIA anticipates $45 billion in revenues for Q2, reflecting a 50% year-over-year growth [5][11] - NVIDIA's earnings per share (EPS) is projected to increase by 42.1% in fiscal 2026 and 31.3% in fiscal 2027, with upward revisions in estimates indicating strong confidence [12][13] Arm Holdings Overview - Arm Holdings has a long-standing role in the semiconductor sector, with its low-power chip designs prevalent in smartphones and tablets [6] - The company is well-positioned to benefit from the rise of AI and IoT, focusing on energy-efficient chips for smart devices and cloud infrastructure [7] - Arm's business model relies on licensing and royalties, providing steady revenue without heavy capital expenditures [8] - However, Arm faces challenges from global trade issues, with 10-20% of its royalty revenues linked to U.S. shipments, and competition from RISC-V technology in China [9][11] - EPS for Arm is expected to grow by 5.5% in fiscal 2026 and 34.8% in 2027, but recent downward trends in estimates reflect uncertainty [12][14] Comparative Analysis - Over the past year, NVIDIA shares have increased by 6.2%, while Arm Holdings shares have decreased by 16.9% [11] - In terms of valuation, NVIDIA's price-to-sales (P/S) ratio stands at 16.26X, significantly lower than Arm Holdings' 31.2X, suggesting better value for NVIDIA relative to its growth potential [15] - Overall, NVIDIA's scale, technological leadership, and ability to navigate challenges position it as a more favorable investment compared to Arm Holdings, which faces tariff risks and high valuation concerns [16]