Arm and Qualcomm Lead Mobile Chip Design. 1 Stock Is the Better Buy.

Qualcomm (QCOM) and Arm Holdings (ARM) are the two dominant mobile chip designers, with Qualcomm leading in terms of actual chip production and Arm holding a near monopoly in chip architecture licensing. Both companies saw their share prices drop after reporting weaker-than-expected earnings on November 4th. Arm's stock fell 14% and Qualcomm's was down roughly 14% as well.

Arm's quarterly revenue reached $1.44 billion, a 27% increase year-over-year, while Qualcomm's revenue fell 8% to $10.44 billion. Arm's adjusted net income was $566 million, or $0.52 per share, beating analyst estimates, while Qualcomm's adjusted earnings were $2.17 per share, slightly above estimates. Despite the recent earnings disappointment, Arm's long-term growth potential, powered by AI data center chip designs, makes it a more attractive long-term investment option, albeit at a high valuation of 220 times earnings.

Qualcomm, on the other hand, is trading at a more reasonable 19 times earnings but is facing rising supply costs that are impacting its profit margins. So, is it a good time to invest in either of these mobile chip designers? Both stocks have shown impressive growth in the past, with Arm delivering an impressive 47% annualized return over the past three years, but the current market conditions might not be the optimal time to buy either.