Missed Out on Nvidia? Be Careful Before Checking Out This Other Semiconductor Stock.

Artificial intelligence (AI) has the power to disrupt all sorts of technology applications. Among the most important pieces stitching together the AI fabric are semiconductors. High-performance graphics processing units (GPUs) are playing an important role in generative AI, machine learning, and quantum computing.

At the center of the AI semiconductor landscape are Nvidia and Advanced Micro Devices. Both of these companies have commanding leads over smaller players, and demand for their respective chips is off the charts.

Over the past year, Nvidia stock has turned $1,000 into more than $3,000, and investors might be worrying that they have missed the boat. If they’re looking for lesser-known names, they might find Arm Holdings (NASDAQ: ARM). The company went public last year and has since flown under the radar, overshadowed by other opportunities in the semiconductor space.

But earlier this month, Arm blew away Wall Street’s expectations during its earnings call for its fiscal third quarter, ended Dec. 31. After reporting earnings on Feb. 7, Arm’s stock nearly doubled over the next three trading days.

The price jump is eye-popping, but is the stock a buy now?

Arm Holdings just smashed expectations

One thing to make clear right off the bat is that the semiconductor industry is cyclical. Demand for chips is going to ebb and flow, and challenges from supply chains and even geopolitical concerns can bring added layers of complexity.

As a result, semiconductor companies can experience dramatic swings in revenue, margins, and profit. Arm has been no stranger to this dynamic, with inconsistent financial and operating performance over the last few years.

But the semiconductor industry is operating in high gear at the moment, and Arm is a beneficiary. For the quarter ended Dec. 31, the company reported revenue of $824 million — an increase of 14% year over year. This handily eclipsed Wall Street’s consensus estimate of $761 million.

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Perhaps even better, Arm had a…