ARM Holdings plc (ARMH) is King of the Hill, but Keep an Eye on the Mountain: Advanced Micro Devices, Inc. (AMD)

NVIDIA has a strong cash balance, low debt, and good margins. The share price has been irritatingly flat, though. At least it has a dividend, though its yield is under 3%. Perhaps, the jump into a high-profile consumer market will rouse the stock. Despite the past performance, I do like the direction of the company. I need to do more research before I come with specific trades, but considering how flat the company has been, I think this place is as good as any if you believe in NVIDIA.

AMD rounds a corner with ARM underarm

Instead of discussing another company that works with tablets or phones, and the occasional electric car, I would rather look at the potential of a new-ish part of Advanced Micro Devices, Inc. (NYSE:AMD)‘s  business. I can’t believe how much I have talked about the company. It is backing ARM-based processors for the microserver environment, which would be in opposition to the x86 instruction set that Intel would use.

Microservers are extremely dense servers with entire systems in a small unit, and numerous units are put into a box that forms the server. That is a lot of cores, some of the boxes will have 64 processors with 8 cores each. That is just one box, and these massive data centers will employ far more.

This presents a great opportunity for Advanced Micro Devices, Inc. (NYSE:AMD) since the microserver space is new, but still part of the lucrative server space. Server revenue in 2011 was over $50 billion, which is substantial. AMD does not need to grow for microservers to be victorious. Those servers will just have to displace normal servers and take those revenues. If AMD can establish ARM as the preferred architecture, then even AMD’s competition will be using ARM-based designs. Both companies stand to profit. The difference is that AMD’s last shot is just one more avenue for ARM.

Microservers are a play on the future needs of the server market, and that market is pretty massive. Both companies stand to benefit substantially from establishing themselves in the market, if it really is the revolution that some hope for. Advanced Micro Devices, Inc. (NYSE:AMD) has potential, but will not make for peaceful nights. NVIDIA is better for sleep at night, and ARM is in a big gray area due to its valuation.

The article ARM Holdings is King of the Hill, but Keep an Eye on the Mountain originally appeared on Fool.com and is written by Nihar Patel.

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