The conversation revolves around the potential growth and challenges of ARM Holdings, a company that provides semiconductor and software design services. The discussion is centered around ARM's role in the AI and data center markets, its partnerships with major tech companies, and the geopolitical implications of its operations in China.
The speaker emphasizes that ARM is a key player in the AI and data center markets, particularly in the smartphone industry. ARM's new architecture is expected to add significant value to the company, increasing its pricing power and growth prospects. The company is also highlighted as a safe bet for investors due to its dominance in the smartphone industry.
However, the speaker also acknowledges the risks associated with ARM's heavy reliance on China for revenues. Geopolitical tensions between the U.S. and China, along with cyclical pressures, pose a potential challenge to ARM's growth. The speaker suggests that ARM's business might be affected by the end of the smartphone cycle, which is currently at a low point.
The speaker also discusses the potential impact of China's growing independence from the West. While ARM is a Western company, it operates in China through local partners. The speaker suggests that ARM's business in China might decrease over the long run as China becomes more independent. However, this is not expected to be a game changer for ARM's overall growth.
In conclusion, the speaker sees ARM as a strong player in the AI and data center markets, with potential for growth despite the geopolitical challenges. The company's partnerships with major tech companies and its dominance in the smartphone industry are seen as positive signals for its future prospects.
1. The speaker is trying to sell the AI story and is seeking help from cornerstone investors.
2. The next guest is initiating the stock with a buy at a 59 target above the top owned of its 47 to 51 range.
3. Pierre Ferragu is joining the discussion.
4. There's a lot more runway on data center and AI.
5. ARM is very much from what's happening in the DAR center today.
6. ARM has very good presence in the DAR center.
7. ARM is really the play that AI is getting everywhere.
8. ARM has been working for several years at introducing to their plans the next generation.
9. The rollout of ARM is a major pricing power event for ARM.
10. This new architecture adds a lot of value to that, and so that increases how much the charge.
11. What we'll see over the next five years is ARM in very, very good gross, even out of marks like the San Antonio markets and deliveries exist.
12. But ARM is going to grow very nicely.
13. As AI gets into the smartphones, ARM is one of the main beneficiaries if not the main beneficiary.
14. ARM is almost like a private industry standard.
15. If you want to do a smartphone, you have to use ARM.
16. If you don't, you're really going to suffer, and you're never going to be successful.
17. So ARM is a very safe business from that perspective.
18. It's default option.
19. Everybody is going to use ARM.
20. The big risk for ARM is really to see the clients growing less comfortable with this dependency, and considering ARM, you know, as something that they would want to stop creating an alternative.
21. That's really the most important long-term that you can think of in the business.
22. And so seeing this players, like Qualcomm, Broadcom and others, taking a stake, even if it's a relatively small is to be an extremely positive signal.
23. The industry is telling you, we trust ARM.
24. ARM is a standard.
25. ARM is doing the right job to give us a platform vehicle system we need to move forward.
26. The other big risk investors talk about is China and the fact that it's China ARM, it doesn't control, it's heavily dependent on that for revenues.
27. China is a big question mark right now, geopolitically with the U.S.
28. It's not immune to end market weakness, especially in smartphones.
29. We're not exactly at a high point in this smartphone cycle.
30. And that's the reason why I'm like to calculate ARM today into on the wave, because we are at a low point in smartphones.
31. Like, a really, really bad environment in smartphone is today, and so what you can expect from here is actually a typical recovery, that might be very slow, by the way.
32. But it's going to be trending.
33. On China, I think you make a very strong point.
34. China is more than 20% of ARM's revenues.
35. ARM doesn't have a direct access to China, they have to go through like a local.
36. If you're using ARM in China today, if you are like a chip manufacturer, a Huawei or anyone else, I can tell you that you're relying on ARM.
37. You cannot do business without ARM today, so make sure that ARM gets paid.
38. At the end of the day, they need access to ARM.
39. They need access to ARM's partners, like this.
40. So there is no way ARM can get out, China can get out of ARM in the near-term, even in the next few years.
41. In the long run, of course, China wants to grow more independent from the West, and ARM is the West.
42. And so there is a question about, it's a very long run, is the weight of ARM's business coming down on it?
43. And my view is that it is going to come down.
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