This Tech Stock Could be Your Ticket to 25% Profits by Q2

Last week, the technology world convened on the adult playground that is Las Vegas for the Consumer Electronics Show, or CES. I've been to several of these shows over the past decade, and it's always amazing to see the future hit gadgets and innovations boosting existing technologies. Hey, even the products destined to lay an egg in the marketplace are fun to see, especially if you look at things from an investing/trading perspective.

Now, this year I wasn't able to attend CES, but that didn't stop me from keeping up on the latest buzz generated on the Sin City convention floor. This year, ultra-high-definition TV was all the rage, with major TV companies such as Panasonic (NYSE: PC), Samsung and Sony (NYSE: SNE) unveiling super high-tech, and very expensive, ultra HD TV sets that use OLED technologies.

Another big buzz product was celebrity endorsed headphones from rap stars like Curtis "50 Cent" Jackson. Then there was the 3D printing buzz, which featured companies such as 3D Systems (NYSE: DDD), which unveiled a relatively low-cost desktop system for printing models, toys and other plastic molded items.

Now, while super high-def TVs, celebrity headphones and 3D printers might be cool, what's more interesting to me is the investable trends that shined at CES, and by far the best thesis, in my opinion, was the presence of the next-generation mobile semiconductor chips.

Here the buzz was generated by several companies, including Intel (NASDAQ: INTC) and Qualcomm (NASDAQ: QCOM). Both stocks have seen strong buying over the past several months, and both have been excellent trading vehicles.

Yet there is another company that I suspect will turn out to be the biggest winner in the next-gen mobile chip space, and it is ARM Holdings (NASDAQ: ARMH).

ARM is a mobile chip company that doesn't actually make chips. Rather, ARM employs an IP licensing model to generate its revenues. The company basically allows chipmakers to use their microprocessor designs -- designs that play a key role in the internal operations of smartphones and tablet computers.

The company's highest profile client is tech behemoth Apple (NASDAQ: AAPL). The iPhone actually runs on a variant of the ARM standard. Rival smartphone maker Samsung has been taking considerable market share away from Apple, but guess what? Samsung uses ARM technology to power its smartphones too.

The way ARM sees it, it'll license its technology to all takers, and then let the market decide which smartphones will win out with consumers. I think this approach will keep ARM revenue and earnings growing steadily, and judging by the price action in the stock, I'm not the only one that thinks so.

The chart below shows the stunning run higher in ARMH stock as it recovered from its July lows.

ARM Holdings Stock Chart

The stock has soared more than 85% since sinking to below $22 a share this summer, and since October, the company has made a consistent push to new multi-year high after new multi-year high. In fact, ARMH shares are nearly back to where they were before the tech bubble burst back in 2000.

The new technology milieu is all about the next-gen mobile chip, and mobile chip technology is what ARM does best. I suspect this trend will continue to push investors into ARMH stock, and that's despite the stock having traded at new highs for the past several months.

Recommended Trade Setup:

-- Buy ARMH at the market price
-- Set stop-loss at $37.28, 8% below the current price
-- Set initial price target at $50.84 for a potential 25% gain in three months

Note: One factor that could cause ARMH a bit of volatility is rival Intel's earnings report scheduled to be released on Thursday. While there is a risk of some downside in related stocks like ARMH if the Intel report is weaker than expected, I suspect that whatever that move, it won't be significant enough to hamper the fundamental and technical thesis set out here.

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