Is Arm Holdings Still a Hidden Winner of the AI Chip Race?

Arm Holdings, a lesser-known chipmaker, is emerging as a potential hidden gem in the AI chip race. Unlike Nvidia and AMD, Arm doesn't manufacture chips; instead, it designs fundamental instruction sets and CPU cores that it licenses to fab contractors. This unique business model allows Arm to earn royalties on every unit shipped, making it a toll booth on a road that continues to widen.

While Arm's design focuses initially on smartphones, it has expanded to data centers, with major players like Nvidia, Amazon, Microsoft, and Alphabet incorporating Arm-based designs in their AI infrastructure. The company's royalty rates have increased with the Armv9 architecture, and the introduction of compute subsystems has streamlined the design process for customers, boosting Arm's revenue.

Arm's financial growth has been impressive, with sales rising 21% and 17% year-over-year in 2011 and 2012, respectively. Despite its growing influence in the AI chip market and outperforming Nvidia in recent periods, Arm's stock remains relatively unknown and is not included in the Motley Fool's top 10 list of stocks for investment.