Prediction: This Artificial Intelligence (AI) Stock Will Outperform Nvidia Over the Next Decade

A couple of years ago, semiconductor specialist Nvidia attempted to acquire a little-known company called Arm Holdings (NASDAQ: ARM).

Unfortunately for Nvidia, the company abandoned the deal as long-winded court cases revolving around antitrust concerns seemed to have no end in sight. Following the failed acquisition, Arm pursued an initial public offering (IPO) -- hitting the Nasdaq last September.

Since going public, Arm stock has surged 138% on the backdrop of the artificial intelligence (AI) movement. But even after such a meteoric rise, I see much better days ahead for Arm. In fact, I think Arm stock will handily outperform Nvidia over the next decade.

Below, I'll detail why I'm so bullish on Arm and explain how rising competition in the chip realm could ignite Nvidia's first uphill battle in quite some time.

Why Arm stock might outperform Nvidia

The semiconductor industry has many different components. Not all chip companies make graphics processing units (GPUs) like Nvidia or Advanced Micro Devices. There are far more applications for chips, and Arm dominates a pretty singular pocket of the market.

At its core, Arm designs chip architecture for mobile devices, consumer electronics, networking equipment inside data centers, and other Internet of Things (IoT) devices. The company makes money from licensing out its intellectual property (IP), and earns a royalty based on its various architectures.

As illustrated in the graphic above, Arm's architecture is deeply embedded across various applications. This provides the company with an enviable level of flexibility regarding new chips hitting the market in the future. In other words, companies running on Arm's architecture are less inclined to develop a new hardware and software system that is incongruent with Arm's architecture.

Furthermore, the slide above shows that Arm's market share has increased across the board over the last two years. With that in mind, I think the company is well positioned to continue benefiting from new chip-based devices, since Arm's IP is already leveraged across so many devices around the world.

For this reason, I see Arm as less vulnerable to competitive forces in the chip space compared to peers such as Nvidia.

Why Nvidia's best days may be in the rearview mirror

Like Arm, Nvidia has a massive presence in its core end market. The company's A100 and H100 chipsets have helped Nvidia acquire an estimated 88% of the GPU market.

However, I see some obvious risks that could expose Nvidia over the next several years, and I would not be surprised to see the company begin to lose market share.