Optimal Semiconductor Investment: AMD versus Arm Holdings' Portfolio
Investing in the semiconductor sector is a smart move due to its booming opportunities. Companies like Advanced Micro Devices (AMD) and Arm Holdings are leading the charge, with AMD focusing on AI system hardware and Arm dominating smartphone chip designs. But which one is the better long-term investment? Let's dive into the details.
Why consider AMD stock?
AMD's magic lies in its accelerated computing approach, which uses dedicated hardware to speed up data processing. With the rise of AI, this technology is in high demand. In Q4 2024, AMD's data center sales surged 69% year-over-year, making up 24% of the company's total Q4 revenue. Moreover, its PC market saw a 58% increase in Q4 revenue, proving AMD's wide appeal beyond the cloud.
Financially, AMD is doing well. Its Q4 gross margin hit a record 51%, with total assets reaching $69.2 billion. Its cash reserves swelled by 13% in Q4, providing a solid foundation for future growth.
Why consider Arm Holdings stock?
Arm's strength lies in its energy-efficient chip designs, which are perfect for AI, given its enormous power consumption. In 2024, Arm introduced its Arm compute subsystems (CSS) for client devices, boosting its AI expansion. The CSS, powered by three-nanometer process technology, increases the chip's power and efficiency.
Arm's finances are equally impressive. Its Q3 gross margin soared to an impressive 97.2%, with total assets of $8.5 billion. Its cash reserves also made a significant leap, jumping to $2 billion.
Is AMD better than Arm?
Valuation is crucial when choosing between AMD and Arm. ARM's forward P/E ratio is significantly higher than AMD's, making AMD a more attractive value investment. AMD's stock correction in 2025, driven by factors like overvaluation and lowered investor optimism, left it looking more reasonable when compared to Arm's seemingly expensive stock.
Conclusion
Both AMD and Arm have stellar AI businesses, making them noteworthy investments in the semiconductor sector. However, AMD's lower valuation makes it the more appealing long-term option.
Investing in AMD's stock could be beneficial due to its strong focus on AI system hardware and the surge in demand for accelerated computing. Amanda's financial performance, including a record 51% Q4 gross margin and growing cash reserves, also supports its potential as a long-term investment.
On the other hand, Arm Holdings' energy-efficient chip designs and AI expansion strategies, such as the introduction of Arm compute subsystems, make it an attractive investment in the semiconductor sector. Arm's impressive Q3 gross margin and growing cash reserves add to its appeal.
Despite Arm's strong performance, AMD's lower valuation, as indicated by its forward P/E ratio, makes it a more attractive value investment, especially after its stock correction in 2025.
By 2025, investing in AMD could enable investors to capitalize on its growing AI business at a potentially more reasonable price compared to Arm's stock.
