Invest in these Two AI Stocks for Long-term Holding throughout the Coming Decade
Investors often gravitate towards NVDA as their top AI stock, given its status as the world's leading producer of data center GPUs for AI tasks. However, it's not the only play in the AI market expansion for the next decade. Two other reliable picks include ARM and AMBA.
1. ARM Holdings
Known for designing most of the world's mobile chips, ARM doesn't manufacture any of its own chips. Instead, it licenses its power-efficient designs to companies like Qualcomm, Apple, and MediaTek. ARM's architecture is ideal for mobile devices, IoT gadgets, and other cloud-based devices, thanks to its power efficiency.
In fiscal 2022, ARM's revenue increased by 33%, mainly due to the boom of 5G devices. However, it declined by 1% in fiscal 2023 as the 5G upgrade cycle ended. A revenue surge of 21% was seen in fiscal 2024, following smartphone market stabilization, increased auto and cloud chips development, and more AI-oriented chip design licensing.
Arm generates the majority of its revenue from royalties and licensing fees, and their growth has been driven by high demand for Armv9 designs in smartphones, cloud, and auto markets. Analysts predict a 22%-25% revenue rise for fiscal 2025, with an adjusted EPS growth of 23%-29%.
From fiscal 2024 to 2027, analysts anticipate Arm's revenue and EPS to grow at a CAGR of 23% and 83%, respectively. Although the stock seems pricey at 82 times forward earnings, it could expand and evolve significantly over the next decade.
2. Ambarella
Ambarella manufactures image processing SoCs and computer vision chips for devices like security cameras, dash cams, drones, and connected devices. Its chips enable these devices to quickly process high-quality photos and videos.
2023 saw a 2% revenue increase for Ambarella, and it declined by 33% in 2024 due to challenges in the U.S. market, reduced IoT and automotive chip sales, and increased competition.
However, from 2024 to 2027, analysts estimate a CAGR of 19% for Ambarella's revenue as its auto and IoT businesses stabilize and it begins selling more AI-oriented computer vision chips. Fiscal 2026 is expected to see Ambarella's adjusted EBITDA turn positive, rising by 38% in 2027.
While it may appear expensive at nine times next year's sales, Ambarella's potential to grow in the AI-driven computer vision market is a likely long-term investment opportunity.
Both ARM and AMBA offer promising opportunities in the AI space. Investors should research the current valuations, potential risks, and growth projections before making investment decisions.
- Financial analysts anticipate ARM and Ambarella to continue their growth trajectories in the AI market, with ARM expecting a 22%-25% revenue increase in fiscal 2025 and Ambarella estimating a 19% CAGR for its revenue from 2024 to 2027.
- Ambarella, with its focus on image processing SoCs and computer vision chips, expects to see a revenue surge from its auto and IoT businesses due to increased demand for AI-oriented chips, while NVDA's investors expect the company to maintain its position as the world's leading producer of data center GPUs for AI tasks.
