Play in AI focus after huge Nvidia rally

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  • While many investors are looking to see if Nvidia could be the next arm to see a 200% rally this year, the two companies are completely different propositions.
  • Analysts said Arm is unlikely to see a big boost in revenue from AI in the near term but could see benefits when AI applications are increasingly run on devices such as smartphones.
  • Richard Windsor, founder of Radio Free Mobile, told CNBC that Arm is unlikely to see a revenue benefit from AI filters for at least three to five years.

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 proof of that. Arm is looking to raise nearly $5 billion in an IPO that would value it at more than $50 billion. And demand is high as Reuters reports that the company could price its shares at the top of its indicated range, or possibly even higher.

Part of that could be SoftBank, Arm’s owner and British chip designer’s position 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 anytime soon, analysts told CNBC.

OpenAI’s ChatGPT has brought AI into the limelight. This is a technology known as generative AI because the AI ​​is able to generate answers by responding to the user’s instructions.

Such AI is based on a model that is trained on large amounts of data. Training these AI models requires a large amount of computing power.

Nvidia designs a type of semiconductor called a graphics processing unit, or GPU, that goes into the data center to train and run these AI models.

In this photo illustration, the Nvidia logo is seen displayed on the smartphone screen in front of the ARM logo.

Paulo Gonchar | Simple Image | Lightrocket | Getty Images

Increasing interest in generative AI has boosted Nvidia’s revenue.

Arm, meanwhile, is a company that designs blueprints or “architectures” for certain semiconductors. These architectures are overall designs with components and programming language instructions that other companies use to build chips. Arm primarily designs central processing units, or CPUs.

Arm-based CPUs are in 99% of the world’s smartphones, including major players like Apple.

While CPUs are also required in data centers, they are often, but not always, used in conjunction with GPUs to train data.

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 doesn’t see a big boost from AI.

“The near-term growth for Arm isn’t really about AI, it’s about mobile, it’s about royalty growth,” Jamie Mills O’Brien, investment director at Abrdn, told CNBC’s “Street Science Europe” on Monday.

“Longer term, I think Arm is trying to focus investors’ minds on the potential … in AI at the edge, AI in the data center, but that’s not a huge part of the company’s exposure at this point.”

Arm’s AI future is unlikely to come from the massive amount of chips needed to train big data models.

Instead, it is more likely to be a major player in AI at the “edge”. This phrase refers to AI processes performed on devices such as smartphones rather than in the cloud like ChatGPT.

For this to happen, devices will need low-power but high-performance chips capable of performing the computations required for AI applications. Arm is designing the architecture for these chips.

“If you’re doing AI on a smartphone or a car, you don’t have the same compute power, so you need to optimize the model to run locally,” Peter Richardson, director of research 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 on the market efficiently runs AI inference applications such as recognizing voices and applying filters to digital images.”

However, Arm is unlikely to reap the benefits of AI filters for at least three to five years, Radio Free Mobile founder Richard Windsor told CNBC.

“Selling Arm as an AI company like Nvidia is what SoftBank needs to do,” Windsor said.

“Now, in the long run, I’m a big proponent of running AI on end-devices, it makes a lot of financial sense for the service provider, and generally a lot more in terms of quality of service, privacy and security and so on. But those revenues don’t accrue to Arm right now. .”

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