The 'Next Nvidia' Trade? Why Investors Are Suddenly Watching Advanced Micro Devices, Arm Holdings, and Marvell Technology

Nvidia (NVDA 1.86%) has been a pioneer in artificial intelligence (AI) over the past few years. The massive parallel computational power of its graphics processing units (GPUs) has made its chips ideal for training large language models (LLMs).

What's worth noting is that Nvidia continues to dominate the AI chip market after all these years, controlling an estimated 80% of this space. However, Nvidia stock has lagged its chip peers, suggesting that investors have been looking at other companies to capitalize on the huge AI infrastructure investments.

Let's see why investors are now looking beyond Nvidia in AI chips.

Image source: Getty Images

These chip companies could upstage Nvidia in the next phase of the AI supercycle

Nvidia's terrific growth in recent years has made it the world's largest company with a market cap of over $5.2 trillion.

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NASDAQ: NVDA

Nvidia

Today's Change

(-1.86%) $-4.09

Current Price

$215.42

Key Data Points

Market Cap

$5.2T

Day's Range

$214.84 - $221.07

52wk Range

$132.92 - $236.54

Volume

5.8M

Avg Vol

171.3M

Gross Margin

74.15%

Dividend Yield

0.02%

The good part is that the company continues to grow at a healthy pace, driven by strong demand for its GPUs from hyperscalers and AI companies. However, its valuation and the gradual shift away from GPUs for handling AI workloads have led investors to look elsewhere to benefit from the secular growth of the AI chip market.

This explains why shares of Advanced Micro Devices (AMD +4.09%), Marvell Technology (MRVL +2.91%), and Arm Holdings (ARM +2.80%) have significantly outpaced Nvidia's stock market returns this year.

Data by YCharts

It is easy to see why that's the case. AMD, Marvell, and Arm are designing chips and related architectures that are preferred for running inference-focused workloads in AI data centers. According to Deloitte, inference workloads will account for two-thirds of AI computing power in data centers this year. As inference isn't as compute-intensive as AI training, hyperscalers and AI companies have been turning to central processing units (CPUs) and application-specific integrated circuits (ASICs) to handle AI workloads in data centers.

This shift has supercharged Arm, Marvell, and AMD. Importantly, all three companies are expected to clock faster earnings growth than Nvidia.

Arm, AMD, and Marvell are at the beginning of a terrific growth curve

AMD and Arm are well-placed to capitalize on the massive opportunity in the server CPU market. AMD noted in its recent earnings call that it expects the server CPU market to grow by 35% annually through 2030, generating more than $120 billion in revenue by the end of the forecast period. AMD has doubled its forecast for the server CPU market's growth due to AI.

Importantly, AMD has been gaining share in server CPUs from Intel, and that's going to supercharge its growth in the long run. Similarly, Arm's chip designs are in hot demand due to their energy-efficient nature. Nvidia's latest Vera server CPUs are designed using Arm's architecture, and even major hyperscalers have been using the British company's intellectual property (IP) to design chips.

Throw in Arm's move into manufacturing its own silicon, and it is easy to see why the company anticipates its total revenue growing to $25 billion after five years, up from $4.9 billion in the previous fiscal year. And finally, Marvell has been benefiting from the shift toward ASICs in AI data centers. The company anticipates its growth rate will accelerate going forward, driven mainly by new custom AI chips it will begin producing over the next couple of years.

In all, the demand for CPUs and ASICs in AI data centers will eventually help these companies grow faster than Nvidia.

| Company | Projected earnings growth | | --- | --- | --- | --- | | | Current fiscal year | Next fiscal year | Two fiscal years ahead | | Nvidia | 87% | 41% | 23% | | Arm Holdings | 22% | 41% | 30% | | Marvell Technology | 34% | 43% | 37% | | Advanced Micro Devices | 76% | 76% | 39% |

Source: Yahoo! Finance and YCharts

So, it is easy to see why investors looking for the next Nvidia have been buying shares of Arm, AMD, and Marvell Technology to capitalize on the inference phase of the AI supercycle.