Nvidia (NVDA +1.67%) CEO Jensen Huang made a big announcement during his keynote address at the company's global artificial intelligence (AI) conference recently, stating that it is on track to generate a whopping $1 trillion in revenue from sales of its AI chip systems through the end of 2027.
That's double the $500 billion in revenue from data center chip sales that Nvidia was anticipating in 2025 and 2026, suggesting that the company's outstanding growth momentum is sustainable. Nvidia's solid guidance stems from strong demand for its current-generation Blackwell processors, as well as robust interest in the upcoming Vera Rubin processors, which are poised to hit the market later this year.
So, buying Nvidia stock could be a smart move to capitalize on the heavy spending in the AI infrastructure market. But what if I told you there is another smart way to benefit from Nvidia's eye-popping growth -- Arm Holdings (ARM +2.63%).
Let's look at the reasons why this British tech company could see a major increase in sales and revenue thanks to Nvidia.
Image source: Nvidia.
Arm Holdings' status as a key Nvidia partner should be a tailwind
Arm doesn't manufacture its own chips. It instead designs and licenses central processing unit (CPU) architecture to its partners. The company makes money by receiving a licensing fee for the intellectual property (IP) it licenses to customers, along with a royalty on each chip manufactured using its architecture.
NASDAQ: ARM
Key Data Points
Arm's architecture has been widely deployed in the design and manufacture of smartphone chips, with the company holding an effective monopoly in this market. It is now gaining solid traction in cloud computing and networking equipment. That's not surprising, as Nvidia has been using Arm's architecture to design server CPUs.
Nvidia's Grace server CPU, which is based on the Blackwell platform, is designed using Arm's architecture. And now, Nvidia is utilizing the British company's Armv9 architecture for the Vera server CPUs. It is worth noting that Nvidia promises a 2x performance increase in the Vera CPUs, compared to Grace. What's more, Nvidia recently announced that it will deploy stand-alone Vera CPUs on a large scale for Meta Platforms starting next year.
Nvidia has been offering server CPUs integrated with its GPUs so far, but its move to offer them as a stand-alone product could unlock a new growth opportunity. All this bodes well for Arm, as it enjoys stronger royalties from the Armv9 architecture.
Arm's growth could exceed expectations
Arm points out that its Armv9 architecture commands a higher royalty rate. A third-party estimate indicates that Armv9 has twice the royalty rate of Armv8. Unsurprisingly, Arm's royalty revenue from AI data centers jumped by over 100% in the previous quarter.
Arm should be able to sustain this impressive momentum in the data center business, as the points discussed above indicate. As a result, there is a good chance the company's earnings growth will outpace analysts' expectations.
Data by YCharts. EPS = earnings per share.
Of course, Arm trades at an expensive 61 times forward earnings. However, it can justify the valuation due to the potential increase in shipments of chips built on its Armv9 architecture. So, growth-oriented investors looking to buy an AI stock that could benefit from the massive demand for Nvidia's AI processors would do well to take a closer look at Arm.
