Nvidia & Arm: Chip space faces supply issues amid AI demand
Nvidia (NVDA) and Arm (ARM) shares are under pressure amid a broader market sell-off sparked by hot CPI data. Creative Strategies CEO and Principal Analyst Ben Bajarin joins Yahoo Finance Live to discuss how these two chip companies remain well-positioned to benefit from surging AI demand amid ongoing supply constraints.
Bajarin stresses markets have "so much demand for compute" on artificial intelligence catalysts while the lack of sufficient suppliers sparks concern. As Nvidia's strategy has given them strong projections through 2025, Bajarin notes supply issues feel "like [they're] not going away anytime soon."
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Editor's note: This article was written by Angel Smith
Video transcript
JOSH LIPTON: Five analysts have now raised their price targets on NVIDIA this year, following a red hot rally for that chip powerhouse. UBS and Mizuho are the latest to boost targets ahead of earnings next week. It comes as the rest of the semiconductors painting a mixed picture in today's trade. Here with more on this is Ben Bajarin, CEO and principal analyst at Creative Strategies. Ben, it is always good to have you on the show, my friend. And let me just dig right into.
NVIDIA, you know, Ben, listen, obviously, we got the sell off today. NVIDIA is slipping a bit in today's trade, Ben. But just pull back the chart. And what a move this name has made, Ben. You're up about 230% over the past 12 months. It's been about 40% already this year. Does that kind of move, does it make sense to you, Ben?
BEN BAJARIN: Yeah, I think, again, you're looking at a company that's likely going 2x revenue this year, if not more. Projections going into 2025 seem equally as strong. And we're in this cycle, where we just have so much demand for compute, and in this case, GPU compute, thanks to AI, and not enough supply.
And so when you hear about what NVIDIA is trying to do to secure more capacity to try to make sure they can sell more GPUs and get to the market what they want-- the software market-- what they want to keep advancing AI, you realize we're up against these limits of really supply, right, not necessarily demand.
So it feels like that's not going away anytime soon. It may eventually, but it doesn't look like that's on the short-term horizon. And you have a lot of that optimism really priced into their valuation at the moment.
JULIE HYMAN: Ben, it's Julie here. When I look across the chip landscape, NVIDIA certainly, it's been surprising to some extent that it's continued to rally, and that there are such expectations baked in. But an even bigger surprise has been Arm. And just the-- even with the drop that we are seeing in those shares today, the pullback, it's up some 60% plus since its earnings last week. is there-- I know there's small float there, but is there just sort of a desperation on the part of investors to get in on AI or to get in on the next big thing here? What's going on?
BEN BAJARIN: Yeah, I mean, I think, again when you look at all of these valuations, like we can debate really are they worth their multiples. I think a couple of things changed with Arm in the recent-- call it three to four months. I think the shift in business model that they bring about in terms of both how they license, as well as how they're monetizing new IP blocks and well as how those new IP blocks over the course of time get monetized is far more clear now than it was when they were a public company many, many years ago.
And so I think people got really excited about the value upside of how their business model changed. And really the cycle of bringing new licensees on and monetizing those licensees with new IP, new product innovation year over year in light of this AI story, as well. But really, a lot of their growth in terms of that earnings wasn't necessarily to just AI. It was just what they were doing around all of their new IP blocks.
So I think there's a shift in sentiment toward understanding their business model and their upside more, whether we-- you know, let's get that at its current valuation I think is a big debate. But I think the clarity in their business model has now has helped sentiment a lot.