Lesser known from across the pond
ARM Holdings plc (NASDAQ:ARMH) may not be a Dow darling, but it has a lion’s share of the market, again much of it behind the scenes. ARM Holdings plc (NASDAQ:ARMH) creates “blueprints” of sorts that are used in over 95% of the world’s mobile phones. As the world becomes increasingly mobile, ARM licenses will allow companies to continue innovating and keep costs reasonable for consumers. ARM’s business model creates a foundation for a stream of royalties that are cycled back into the company. Sounds an awful lot like a good stock.
The company’s weakness for investors lies in its yield, sitting at 0.38%. Although projected to increase, it’s difficult to convince investors at this level when the business appears to be a cash machine on the outside. However, many projects, such as partnerships with phone manufacturer LG take years to deliver maximum profits. Forecasting technology trends is nearly impossible, but if ARM can build on its $131 million in free cash while keeping debt non-existent, it’s a company worth watching.
Crosstown rival
Intel’s graphics nemesis, NVIDIA Corporation (NASDAQ:NVDA) has been on the market radar for a long time. It has received praise from analysts, is followed closely by hardcore gamers, and is making a worthy push to obtain and hold a strong position on the mobile platform.
NVIDIA Corporation (NASDAQ: NVDA) is reported to hold a 36% share of Android tablet processors, but Intel is still dominant in the more encompassing market of graphics chips in personal computers. NVIDIA sits in third place here, behind struggling Advanced Micro Devices, Inc. (NYSE:AMD). The company needs to strengthen its position in this category if it intends on being competitive when tablets reign supreme in the near future.
NVIDIA is down near 20% TTM, yet trades at a fair 13.6 times earnings, has no debt, and sits on $641 M in cash. Growth is very slow, and is nearly stagnant when looking at trends over the last decade. Perhaps, a result of its inability to step up their “game.” NVIDIA recently announced Shield, a mobile gaming device that will use platforms such as Android, and be portable as well as feature connectivity to televisions and PCs.
It’s a bold move, but with console systems on the decline and lack of success in portable systems excluding smartphones, it’s a very risky venture. As a potential investor, I wouldn’t be too thrilled with this gamble.
The bottom line
I’ll continue to dive into the world of chips and semiconductors, but for now, Intel is your best bet because of its established position. It has remained a bargain throughout the first quarter but will make the climb again, paying shareholders well along the way. ARM could be a great supplemental investment, but requires a very long-term commitment and patience. Although technology changes incessantly, get invested in this field of innovation in some way for the long haul.
Kyle Vaughan has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel.
