According to technology business publication The Information,Microsoft(NASDAQ: MSFT) and OpenAI plan to build a new AI platform called Stargate.superOn your computerinvestMicrosoft and OpenAI are said to be in the third phase of a five-phase project, of which Stargate will be the fifth, although they have not yet released details. The article suggests that a significant portion of the project's budget may be spent on semiconductors, with the goal of making the machinesuperThe computer is operational in 2028.
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Arm Holdings is a British chip design company that licenses its intellectual property to semiconductor companies and OEMs, which then customize Arm's instruction set to manufacture chips according to their own specifications and requirements. Arm's intellectual property is used to manufacture central processing units (CPUs), graphics processing units (GPUs), neural processing units (NPUs), and interconnect technologies. Microsoft's deployment of custom chips based on Arm designs, such as Azure Cobalt, could bring growth to Arm Holdings. According to Arm, Cobalt can "address the challenges facing infrastructure from artificial intelligence to sustainability."maximumand the most complex challenges”.
Microsoft may reduce its reliance on companies like Nvidia by deploying future generations of Cobalt processors, thereby improving performance and reducing costs.superGiven the enormous power consumption required by the computer, Microsoft is likely to pack a considerable amount of energy-efficient custom chips like Cobalt into it, rather than power-hungry GPUs. So as Microsoft builds its ambitioussuperComputers, Arm's AI-related revenue could get a boost.
Arm has benefited from the growth of AI chips, but Microsoft's large project could be another catalyst that leads to stronger revenue growth than analysts expect. Current consensus estimates show that Arm's earnings are expected to grow at an average annual rate of nearly 45% over the next five years. If this forecast is accurate, its earnings per share will jump to about $7.63 in five years (based on the estimated earnings per share of $1.19 in fiscal 2024).
Combined with the Nasdaq 100's future earnings multiple of 27.3 (using the index as a proxy for tech stocks), we get an expected share price of $208 in five years, $69% above current levels. Given Microsoft's Stargate-based demand, Arm's earnings are likely to be stronger, so it's a good idea to buy into AI.stockInvestorsmostBuy Arm stock before its share price soars.