We recently compiled a list of the 5 Stocks Jensen Huang's Company is Betting On. In this article, we are going to take a look at where Arm Holdings plc (NASDAQ:ARM) stands against the other stocks.

Nvidia has a reputation for identifying high-quality companies in their initial stages and betting on their success. Last year, the company participated in more funding rounds than any other company in the US, behind only Alphabet. In the past, it has invested in startups like OpenAI, Perplexity, and Mistral, so when the chipmaker puts its money in some company, people are bound to notice.

A similar occurrence happened when the firm filed its recent 13F report. There were some clear omissions and needless to say, the stock prices of those companies tanked as the market digested the news of divestment. For those still on the list, the stock price reacted positively.

As the Santa Clara-based chipmaker proceeds with these investments, there is also the threat of regulators increasing the scrutiny based on anti-competitive practices. The firm is already facing the threat of anti-competitive charges in France and at home, and the recent acquisition of Run:ai continues to be under scrutiny. It must be said, however, that these challenges do not necessarily have any negative impact on the companies that made it to the 13F.

We decided to take a look at the stocks still on the 13F filing and find out what’s attracting the chipmaker to these companies. Do they have a moat? Are they still worth buying for the average investor? Or have the stocks already rallied too much?

A robotic arm holding a semiconductor chip, emphasizing the precision and quality of the company's production equipment.

Arm Holdings plc (NASDAQ:ARM)

Arm Holdings plc (NASDAQ:ARM) is known for its CPU and semiconductor-related technologies which it licenses to other major semiconductor players in the industry. The company’s products are used in everyday devices like smartphones and laptops. Even though the biggest semiconductor company in the world has trimmed down its position in the stock, it continues to have a significant holding worth $135 million, the highest investment in a company according to the recent filing.

ARM is an integral part of the current AI ecosystem and should remain so in the future as well. The company’s business model allows it to earn recurring revenue through licensing deals. With it being an integral part of the ecosystem, these royalties and licensing deals aren’t going away anytime soon.

This also begs the question of whether the current valuation is justified. At over 100 times future earnings, the stock is overvalued. However, it could stay permanently overvalued due to the nature of its business. Investors focusing on quality stocks will have no problem buying the stock at these valuations, as these are likely to stay.

Overall ARM ranks 1st on our list of the stocks Jensen Huang's company is betting on. While we acknowledge the potential of ARM as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.