Which Offers the Better Investment Opportunity: ARM or APP?

When it comes to artificial intelligence-driven technology stocks, two names frequently dominate investor conversations: AppLovin Corporation APP and Arm Holdings plc ARM. Though operating in distinctly different technology niches, both have established formidable positions within the AI revolution. AppLovin leverages machine learning to enhance advertising effectiveness and marketing automation, while Arm provides the chip architecture powering AI hardware across cloud, data center, and mobile environments. For those seeking compelling exposure to AI’s transformative potential, understanding the differences between these two firms becomes essential.

Financial Performance: Where the Momentum Lies

Recent quarterly results reveal contrasting growth trajectories. AppLovin’s third-quarter report showed revenues climbing 68% year-over-year to $1.41 billion, with adjusted EBITDA jumping 79% to $1.16 billion—a remarkable 82% margin. Free cash flow surged 92%, demonstrating exceptional operational efficiency and profit conversion.

Arm Holdings reported its strongest second quarter, posting $1.14 billion in revenues (up 34% year-over-year), with operating income rising 43% to achieve a 41.1% margin. Non-GAAP earnings per share of 39 cents exceeded expectations, reinforcing its growing importance in powering AI workloads.

The divergence becomes clearer when examining forward projections. AppLovin is anticipated to deliver 18% revenue growth with a striking 106% earnings increase, signaling robust operational leverage. Arm, conversely, projects 21.5% revenue growth but only 5.5% EPS expansion—indicating more measured earnings progression as the company scales AI chip design investments.

Strategic Positioning in the AI Ecosystem

AppLovin’s evolution from gaming-focused advertising toward a comprehensive digital advertising platform reflects its AI-driven strategy. The company’s upcoming initiatives include enhanced advertiser onboarding, AI-powered customer support, generative AI for ad creation, and expanded Axon Ads capabilities. Its MAX supply-side platform continues benefiting from rising advertiser demand and increasingly sophisticated campaign optimization, solidifying dominance within app-based advertising.

Arm’s path differs substantially. Recent partnerships—most notably with Meta—aim to optimize AI efficiency across the entire computing spectrum. The company’s Compute Subsystem designs are reshaping chip development timelines and reducing technical risk for manufacturers. Google’s Axion processor, built on ARM architecture, delivers 65% better price performance while reducing energy consumption by 60%. Meanwhile, the Lumex CSS platform, designed for flagship mobile devices from OPPO and vivo, enables real-time translation and on-device AI processing.

Valuation Assessment: A Decisive Factor

This analysis reveals a compelling valuation divergence. ARM trades at a forward P/E of 65.71x—lower than its historical 123.45x median but still elevated. Its premium reflects long-term AI and IoT growth expectations.

AppLovin, by comparison, commands a forward P/E of 38.55x, only slightly below its 41.48x median. Given stronger earnings momentum and operational efficiency gains, this valuation appears considerably more attractive relative to growth prospects. For investors prioritizing near-term upside backed by tangible profitability improvements, AppLovin presents the more balanced opportunity.

The Investment Takeaway

Both companies deserve recognition as fundamentally sound AI beneficiaries. However, current conditions suggest different roles within a portfolio. Arm remains positioned for long-term chip architecture expansion, supported by hyperscaler adoption of energy-efficient designs. Yet its premium valuation leaves limited room for near-term appreciation until earnings visibly accelerate.

AppLovin’s trajectory appears more immediately compelling. Superior earnings growth, rising cash flow conversion, and reasonable valuation multiples suggest clearer upside potential. While both warrant consideration within an AI-focused strategy, AppLovin currently emerges as the more attractive candidate for those seeking nearer-term appreciation driven by operational excellence and improving market positioning.