After Nvidia’s 200% rally this year, investors look to the Arm IPO — but the two are very different
In this photo illustration, Nvidia logo is seen displayed on a smartphone screen in front of ARM logo.
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Arm is preparing for a blockbuster initial public offering at a time when investors are very interested in both semiconductors and artificial intelligence.
Nvidia’s 200% rally this year is evidence of this. Arm is looking to raise nearly $5 billion from the IPO which would value it at over $50 billion. And demand is high with Reuters reporting that the company could price its shares at the top of its indicated range or possibly even above it.
Part of that may be down to Softbank, the owner of Arm, and its positioning of the British chip designer as an AI play. Arm will be “central” to the transition to AI-enabled computing, the company said in its IPO prospectus.
But the company is a different proposition to Nvidia and is unlikely to see the benefits of the AI boom in the near-term, analysts told CNBC.
Nvidia vs. Arm: A comparison
AI has been thrust into the spotlight, in large part thanks to OpenAI’s ChatGPT. This is a technology known as generative AI because the AI is able to generate answers in response to user prompts.
Such an AI is based on a model which is trained on huge amounts of data. A vast amount of computing power is required to train these AI models.
Nvidia designs a type of semiconductor called a graphics processing unit or GPU, which go into data centers to train and run these AI models.
The soaring interest in generative AI has seen Nvidia’s earnings surge.
Arm, meanwhile, is a company that designs the blueprint or “architectures” of certain semiconductors. These architectures are the overall designs, including components and programming language instructions that other companies use to build chips. Arm mainly designs central processing units or CPUs.
Arm-based CPUs are in 99% of the world’s smartphones including from major players like Apple.
While CPUs are also required in the data center, they’re often used in conjunction with a GPU to train data, but not always.
Arm makes most of its money from royalties and licensing its architecture. More than 50% of this revenue comes from smartphones and consumer electronics. So far, it is not seeing a big boost from AI.
“Growth in the near term for Arm is really not about AI, it’s about mobile, it’s about royalty increases,” Jamie Mills O’Brien, investment director at Abrdn, told CNBC’s “Street Signs Europe” on Monday.
“In the longer term, I think Arm is trying to focus investors minds on the potential … AI in the edge, AI in the data center, but at the moment that’s not a huge part of the company’s exposure.”
Arm’s future in AI
Arm’s AI future is unlikely to come from the huge amounts of chips required to train big data models.
Instead, it’s more likely to be a major player in AI on the “edge.” This phrase refers to AI processes carried out on a device, such as a smartphone, rather than in the cloud, like ChatGPT.
For this to happen, devices will require low-power but high-performance chips able to carry out the computing required for AI applications. Arm is designing the architecture for these chips.
“If you’re doing AI on a smartphone or car you’re not going to have that same level of compute power, so you need to optimize the model to run locally,” Peter Richardson, research director at Counterpoint Research, told CNBC.
“Those processors will almost certainly be Arm-based”
Arm said in its IPO filing that its processors already run AI workloads “and every smartphone currently in the market efficiently runs AI inference applications, such as voice recognition and applying filters to digital images.”
However, Arm is unlikely to see the benefit from AI filter through to its revenue for at least three-to-five years, Richard Windsor, founder of Radio Free Mobile, told CNBC.
What SoftBank has been required to do is to sell Arm as an AI company like Nvidia,” Windsor said.
“Now, in the long term absolutely, I’m a big proponent on running AI on end-devices, it makes an awful lot of economic sense for the provider of the service, and also much more in general in terms of the quality of the service, privacy and security and so on and so forth. But those revenues are not accruing to Arm right now.”
The X logo appears on a phone, and the xAI logo is displayed on a laptop in Krakow, Poland, on April 1, 2025. (Photo by Klaudia Radecka/NurPhoto via Getty Images)
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Elon Musk‘s xAI Holdings is in discussions with investors to raise about $20 billion, Bloomberg News reported Friday, citing people familiar with the matter.
The funding would value the company at over $120 billion, according to the report.
Musk was looking to assign “proper value” to xAI, sources told CNBC’s David Faber earlier this month. The remarks were made during a call with xAI investors, sources familiar with the matter told Faber. The Tesla CEO at that time didn’t explicitly mention any upcoming funding round, but the sources suggested xAI was preparing for a substantial capital raise in the near future.
The funding amount could be more than $20 billion as the exact figure had not been decided, the Bloomberg report added.
Artificial intelligence startup xAI didn’t immediately respond to a CNBC request for comment outside of U.S. business hours.
The AI firm last month acquired X in an all-stock deal that valued xAI at $80 billion and the social media platform at $33 billion.
“xAI and X’s futures are intertwined. Today, we officially take the step to combine the data, models, compute, distribution and talent,” Musk said on X, announcing the deal. “This combination will unlock immense potential by blending xAI’s advanced AI capability and expertise with X’s massive reach.”
Read the full Bloomberg story here.
— CNBC’s Samantha Subin contributed to this report.
Alphabet CEO Sundar Pichai during the Google I/O developers conference in Mountain View, California, on May 10, 2023.
David Paul Morris | Bloomberg | Getty Images
Alphabet‘s stock gained 3% Friday after signaling strong growth in its search and advertising businesses amid a competitive artificial intelligence environment and uncertain macro backdrop.
“GOOGL‘s pace of GenAI product roll-out is accelerating with multiple encouraging signals,” wrote Morgan Stanley‘s Brian Nowak. “Macro uncertainty still exists but we remain [overweight] given GOOGL’s still strong relative position and improving pace of GenAI enabled product roll-out.”
The search giant posted earnings of $2.81 per share on $90.23 billion in revenues. That topped the $89.12 billion in sales and $2.01 in EPS expected by LSEG analysts. Revenues grew 12% year-over-year and ahead of the 10% anticipated by Wall Street.
Net income rose 46% to $34.54 billion, or $2.81 per share. That’s up from $23.66 billion, or $1.89 per share, in the year-ago period. Alphabet said the figure included $8 billion in unrealized gains on its nonmarketable equity securities connected to its investment in a private company.
Adjusted earnings, excluding that gain, were $2.27 per share, according to LSEG, and topped analyst expectations.
Alphabet shares have pulled back about 16% this year as it battles volatility spurred by mounting trade war fears and worries that President Donald Trump‘s tariffs could crush the global economy. That would make it more difficult for Alphabet to potentially acquire infrastructure for data centers powering AI models as it faces off against competitors such as OpenAI and Anthropic to develop largely language models.
During Thursday’s call with investors, Alphabet suggested that it’s too soon to tally the total impact of tariffs. However, Google’s business chief Philipp Schindler said that ending the de minimis trade exemption in May, which created a loophole benefitting many Chinese e-commerce retailers, could create a “slight headwind” for the company’s ads business, specifically in the Asia-Pacific region. The loophole allows shipments under $800 to come into the U.S. duty-free.
Despite this backdrop, Alphabet showed steady growth in its advertising and search business, reporting $66.89 billion in revenues for its advertising unit. That reflected 8.5% growth from the year-ago period. The company reported $8.93 billion in advertising revenue for its YouTube business, shy of an $8.97 billion estimate from StreetAccount.
Alphabet’s “Search and other” unit rose 9.8% to $50.7 billion, up from $46.16 billion last year. The company said that its AI Overviews tool used in its Google search results page has accumulated 1.5 billion monthly users from a billion in October.
Bank of America analyst Justin Post said that Wall Street is underestimating the upside potential and “monetization ramp” from this tool and cloud demand fueled by AI.
“The strong 1Q search performance, along with constructive comments on Gemini [large language model] performance and [AI Overviews] adoption could help alleviate some investor concerns on AI competition,” Post wrote in a note.
WATCH: Gemini delivering well for Google, says Check Capital’s Chris Ballard
CNBC’s Jennifer Elias contributed to this report.
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