Ever since ChatGPT launched in Nov. 2022, one AI stock has stood head and shoulders above the others.
That's Nvidia (NVDA +0.36%), as the GPU-maker has jumped nealry 1,000% since then, adding more than $4 trillion in market cap to make it the most valuable company.
However, Nvidia's time in the limelight may be fading. The stock has traded sideways for the last six+ months, and investors seem to be moving on to other AI bets. Memory stocks like Micron have soared during that period, as there is now a shortage of high-bandwidth memory chips, which are crucial for running AI applications.
Now, there is a sign that another chip could be on the verge of a breakout: the CPU, or central processing unit.
Image source: Getty Images.
Why the CPU is having a moment
In the initial wave of the AI boom, the CPU was largely forgotten as companies spent wildly on GPUs from Nvidia. Back then, the emphasis in AI was on training, which is heavily dependent on GPUs.
Now, more AI infrastructure spending is going toward inference, which is more dependent on CPUs, which is likely to be the major driver of compute activity at established large language models (LLM).
Arm (ARM +5.81%) stock jumped on Wednesday as the company introduced its first-ever in-house chip, breaking from its historical licensing model. In the announcement, the company explained that agentic AI would drive a shift in AI from training to deploying continuously running agents. That means the volume of tokens generated will significantly increase, demanding more CPUs. According to estimates, data centers are forecast to grow current CPU capacity per GW by more than four times.
Investors cheered the announcement, sending Arm stock up 16% on the news.
Not to be outdone, Intel (Nasdaq: INTC) and Advanced Micro Devices (Nasdaq: AMD), the two dominant makers of CPUs, had their own announcement. According to Nikkei Asia, both companies have told investors that they plan to raise prices across their entire CPU product lines, starting this month. The two companies are expected to raise prices by up to 15%, and Nikkei Asia went far enough to say shortages were coming to the CPU market, implying that CPU prices will continue to go up from here.
Those supply demand dynamics should be a boon for all three companies, and Intel and AMD jumped on that report as well, each gaining 7% on the news.
NASDAQ: ARM
Key Data Points
Time to buy CPU stocks?
The fervor in the CPU market has gotten hot enough that Nvidia is entering the fray for the first time, launching its own CPU following its licensing agreement with Groq. At the announcement, Nvidia CEO Jensen Huang talked up the opportunity in AI inference and saw a chance for the company to get more exposure in inference.
Much like what we're seeing in the memory chip market, there doesn't have to be a single winner in CPUs. In fact, the evolving market dynamics are likely to push prices higher and favor all chip-makers in the AI CPU market. It's also a market that seems up for grabs, as there's no established leader like Nvidia was with GPUs.
Arm was already capitalizing on the boom with its licensing approach, as it said royalties from data center chips more than doubled in the most recent quarter. Arm expects its AGI CPU to hit the market in the second half of the year. It's signed on Meta Platforms as its flagship launch partner, and it has several other customers signed up. The AGI CPU could be a smash hit as Arm has a competitive advantage with its power-efficient architecture.
We'll learn more shortly, but a tailwind in the CPU sector could be emerging at just the right time for Arm and its peers.
