There's no shortage of news in the AI sector these days, but investors looking for a long-term AI stock to buy and hold shouldn't be so swayed by the daily headlines.
Instead, you'll want to find a company with an enduring business model, strong competitive advantage, and a clear path to long-term growth on the top and bottom lines. One stock that fits all three of those categories is Arm Holdings (ARM +0.54%), which is best known for licensing its CPU architecture to partners like Nvidia and Apple.
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Why Arm is a good long-term bet
Arm has a unique business model in the semiconductor sector. Rather than designing chips or even manufacturing them, the company licenses its CPU designs, collecting money from both a licensing fee and then royalties when the product containing that license sells.
That's been a winning, high-margin business model for Arm, even if it means it doesn't collect as much revenue as it would if it were designing the chips entirely.
It also shows how the company is set up well for long-term growth. First, the company's CPU architecture is much better at conserving battery power than the competing x86 platform from Intel and AMD. That's why Arm has more than 99% market share of the smartphone market, and its market share is growing in data centers, where power is also at a premium.
Arm's royalties also last for a long time. In fact, half of the royalties it's collecting now come from designs that are more than 10 years old. The company continues to innovate, and it's now getting into chip design and more complex products like system-on-chip (SoC) licenses.
However, its technological advantage in CPU architecture and the strength of its royalty model should ensure that the company continues to grow. It has benefited from the AI boom and will continue to do so, but its advantages make it more resilient than many of its peers.
