Nvidia (NVDA -2.50%) It was the undisputed winner in the early stages of the artificial intelligence (AI) revolution. Investors took note last month when the company released a regulatory filing disclosing its holdings in several AI stocks. Nvidia filed its first-ever 13F with the Securities and Exchange Commission (SEC) on February 14th, after the total value of these holdings exceeded $100 million in the quarter ending December 31st. It became.
Given the company’s track record of success in the AI space, it’s no wonder investors are so interested in the stocks that make up Nvidia’s own AI portfolio. Here’s a quick rundown of his five stocks that made the list and the five stocks that garnered the majority of his Nvidia investments.
Image source: Getty Images.
eclectic group
- nano-x imaging has developed a more cost-effective X-ray machine that leverages AI to provide more accurate diagnosis. This is his smallest stake in Nvidia, currently valued at $553,000.
- TuSimple Holdings developed self-driving semi-trucks for freight transportation, but has since been delisted and privately held. This is his second smallest stake in Nvidia, worth about $1.7 million.
- Soundhound AI develops conversation and voice recognition AI solutions for the automotive and restaurant industries. The stock is currently valued at approximately $10 million.
- recursion medicine is a biotechnology company that uses AI to inform drug discovery efforts. This is Nvidia’s second largest investment, at approximately $81 million.
Meet the biggest and best
The last stock in the portfolio should come as no surprise to Nvidia investors.The stock is arm holdings (arm -1.83%). Nvidia owns a stake in Arm Holdings, currently worth about $253 million. This is more than 2.5 times the value of all his other holdings. Combined. This helps show his Nvidia’s confidence in Arm’s future trajectory.
Investors will recall that Nvidia made a much-publicized bid to acquire Arm Holdings for $40 billion in late 2020, but the deal was ultimately scrapped by regulators in early 2022. . After the acquisition failed, Arm Holdings went public in September 2023. But at the IPO, Arm revealed that Nvidia had “expressed interest” in purchasing the stock.
What made Arm an attractive target for Nvidia? Primarily, the company has deep ties to technology and AI. Arm’s processor designs are at the heart of nearly every smartphone on the market today, and its processor designs are integrated into a long list of devices, including tablets, smart TVs, and personal computers.
From an AI perspective, that chip blueprint is a critical component of hyperscale computing, cloud computing, and data centers, where the majority of AI processing takes place. Arm-designed central processing units (CPUs) are a critical part of AI systems. For example, Nvidia’s cutting-edge Grace Blackwell GB200 superchip contains 36 Grace CPUs, each containing his 72 Arm version 9 (v9) cores. This means you have a lot of number crunching muscles in one package. Arm CEO Rene Haas said that v9 not only offers more computing power than the previous version, but his royalty rate has also doubled. This means that every time the Arm is used, he will receive double the reward.
AI powerhouse
Those who do math at home will easily see how much faster Arm’s calculations can be. In the third quarter of fiscal 2024, Arm generated record revenue of $824 million, an increase of 14% year over year, and adjusted earnings per share (EPS) of $0.29, an increase of 32%. But that’s only part of the story.
Arm’s remaining performance obligations (RPO), which includes contractually obligated revenue that has not yet been recognized, is a forward-looking indicator and the future looks good. RPO increased 38% year over year to $2.43 billion in the third quarter.
The company expects the growth spurt to continue. Arm expects fourth-quarter sales of $850 million to $900 million, which corresponds to his 34% to 42% growth and outpaces his 14% growth in the third quarter. exceeds.
There is a question of valuation, and it requires some context. Arm currently trades at a P/E ratio of 1,700 times sales and 45 times sales. Although it seems so, outrageously Due to its high price, Arm’s expected growth rate is not taken into account. Looking at Arm’s expected price/earnings ratio (PEG), it is selling at a valuation of less than 1, which is the standard for undervalued stocks. Given this disparity, it’s no surprise that some investors are put off by (seemingly frothy valuations).
This metric suggests that the AI gold rush is just beginning for Arm Holdings. Given the depth of its dealings with Nvidia, Nvidia should have known this too, making it all that surprising that Arm would attract his Nvidia takeover attempt and the company’s largest stock-based investment. Not.
