The semiconductor sector is a great market for investors thanks to its strong growth opportunities. Computer chips are in increasing demand in a wide range of industries, including robotics, automobiles and artificial intelligence.
Two well-known semiconductor companies considering investing in the present are advanced microdevices (NASDAQ:AMD) and possessing arms (NASDAQ:ARM). AMD generates hardware that enables AI systems. ARM is particularly known for its chip designs in smartphones. In particular, it holds an estimated 99% market share.
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Both companies offer reasons to invest, but if you have to choose between them, which one will be at the top? This is a breakdown of AMD and ARM.
Why consider AMD stocks?
AMD is an attractive investment as its products enable advanced computer architectures known as accelerated computing. This approach uses dedicated hardware to speed up data processing. AI systems can break through a massive flood of data and require accelerated computing.
When AI took off, AMD experienced massive sales. In the fourth quarter of 2024, the company’s data center sales rose to 69% year-on-year to $3.9 billion. As data centers house AI systems, this portion of AMD’s business was key to fourth quarter total revenue, growing 24% to $7.7 billion.
Data center customers aren’t the only ones who are hungering for AMD’s hardware. There was also strong demand from the PC market as AI expanded beyond the cloud to personal devices. This portion of AMD’s business reached a record $2.3 billion in fourth quarter revenue growth of 58% year-on-year.
The success of AMD sales has led to excellent financials. For example, the total margin for the fourth quarter increased to 51% compared to 47% in the previous year. This shows increased cost management and profitability for your business.
AMD’s fourth quarter balance sheet boasts total assets of $69.2 billion compared to total liabilities. That assets include $5.1 billion in cash, cash equivalents and investments, with an improvement of 13% from the third quarter.
For ARM Holdings Stock
Armholding dominates the smartphone semiconductor chip market due to its energy efficient design. Currently, the company is using its mobile device strengths to gain a share of the lucrative AI market. This is a wise move, as AI Tech consumes a huge amount of power.
Last year, ARM introduced new integrated circuits to support the use of AI in consumer devices. This called the client’s ARM Computation Subsystem (CSS). This product uses 3 nanometer process technology to reduce the circuit to the size of human DNA. This will allow more components to fit on the chip, making the device even more powerful.
According to ARM management, CSS demand was strong, bringing record royalty revenues of $580 million (an increase of 23% year-on-year) in the third quarter ended December 31, 2024.
In addition to increasing revenue, ARM’s finances are strong. The total margin for the third quarter was 97.2%, up from 95.6% in the previous year. The company’s third quarter balance sheet included $8.5 billion in total assets, $2 billion, equivalent to cash. That cash pile alone was nearly outweighing its total $2.1 billion debt.
ARM generates revenue through chip design licensing and loyalty collection, but may be expanding to other revenue streams. According to a recent news report, ARM produces real hardware that is driven by design, securing Facebook’s parent meta platform as its customer.
The social media giant is building urban-sized data centers, so meta becomes a key customer. If the news report is correct, the move would put ARM in a direct competition with AMD. This currently provides hardware to the meta.
Decision of AMD and ARM Stock
Given the success of AMD and ARM’s AI business, both are semiconductor companies worth investing in. However, when choosing between the two, a key factor to consider is stock valuation.
To evaluate this, let’s take a look at the forward price (P/E) ratio for each company. This metric shows how willing investors will pay for dollar-worthy revenues based on estimates over the next 12 months. ARM’s forward P/E ratio is significantly higher than AMD at the time of writing. This suggests that AMD stocks are of better value.
Data by ycharts.
AMD’s forward P/E multiple fell in 2025 due to a decline in stock prices. The stock fell due to a combination of factors. Because AMD was highly rated, its inventory was scheduled to be revised. Then, in January, Wall Street optimism about American AI companies was shaken up after Chinese startup DeepSeek unveiled a low-cost AI product. Finally, AMD’s fourth quarter results were excellent, but were not met by the rising Wall Street expectations.
Currently, AMD stock prices look more reasonable while arm stock appears expensive. Both have strong companies with potential for future growth, but AMD stocks are more attractive investments in the long run, as they have better value.
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Randi Zuckerberg, a former director of market development, Facebook spokeswoman and sister to Metaplatform CEO Mark Zuckerberg, is a member of Motley Fool’s board of directors. Robert Izquierdo has advanced microdevice, ARM Holding and metaplatform positions. Motley Fool has introduced and recommended advanced microdevice and meta platforms. Motley Fools have a disclosure policy.
The views and opinions expressed herein are the views and opinions of the authors and are not necessarily Nasdaq, Inc. It does not reflect the opinions of
