Weighing AppLovin Against Arm: Which AI Stock Offers Better Investment Prospects?

In the rapidly evolving artificial intelligence landscape, AppLovin Corporation APP and Arm Holdings plc ARM have emerged as two distinct yet powerful players reshaping how businesses harness AI technology. While their operational domains rarely overlap, both have positioned themselves as compelling bets for those seeking exposure to the artificial intelligence revolution. AppLovin leverages advanced machine learning to enhance ad targeting, platform monetization and customer engagement strategies. Arm, meanwhile, provides the hardware architecture underpinning the next generation of AI-capable processors deployed across cloud infrastructure, edge devices, mobile platforms and enterprise data centers.

AppLovin’s Momentum: Advertising Automation Driving Growth

AppLovin has been systematically integrating AI across its entire operational stack. The company’s roadmap emphasizes streamlining advertiser onboarding, deploying AI-powered customer service solutions, exploring generative AI applications for creative asset generation, and strengthening its Axon Ads ecosystem. These initiatives target a dual objective: reducing friction in customer acquisition while simultaneously broadening appeal beyond its traditional gaming advertiser base toward broader vertical segments.

The transformation reflects AppLovin’s strategic pivot from a gaming-focused monetization platform toward a comprehensive, AI-enhanced advertising technology business. By combining machine learning pattern recognition with granular behavioral datasets, the platform has substantially improved its capacity to predict user engagement patterns, refine targeting algorithms and ultimately maximize advertiser profitability. This technological foundation not only bolsters immediate financial metrics but also provides defensive characteristics during downturns in overall advertising spending.

AppLovin’s most recent quarterly results underscore this operational progress. Revenue reached $1.41 billion, surpassing consensus forecasts and climbing 68% year-over-year. Adjusted EBITDA expanded 79% to $1.16 billion, translating to an impressive 82% margin profile. Free cash flow generation surged 92% annually to $1.05 billion, demonstrating that incremental revenue is converting almost entirely into bottom-line profit expansion—a hallmark of platform leverage and operational maturity.

The company’s MAX supply-side platform continues capturing market share through improved ad-serving algorithms and higher campaign performance metrics, particularly within mobile gaming verticals. These dynamics confirm AppLovin’s sustained dominance in application-based advertising ecosystems.

Arm’s Architectural Advantage: Building the AI Hardware Foundation

Arm Holdings has accelerated its expansion through strategic partnerships and next-generation chip design innovations. A landmark collaboration with Meta seeks to optimize AI computational efficiency across wearables, smartphones, enterprise servers and specialized edge devices by merging Arm’s power-efficient architecture expertise with Meta’s AI infrastructure capabilities.

The company’s significance as an infrastructure partner remains undisputed. Leading hyperscale operators—including Google, Amazon Web Services, Microsoft and NVIDIA—have integrated Arm-based designs into proprietary chip lineups. Google’s Axion processor exemplifies this trend, delivering 65% performance-per-dollar improvements while consuming 60% less energy, underscoring Arm’s relevance in modern computing economics.

Arm’s Compute Subsystem platform represents a fundamental shift in semiconductor development methodology, shortening design cycles and mitigating technical risk for manufacturing partners. The Lumex CSS mobile platform, positioned as Arm’s most sophisticated on-device AI architecture to date, is already powering flagship handsets from OPPO and vivo, enabling real-time language processing, advanced computational photography and localized AI inference capabilities.

Arm delivered record financial performance in its latest quarter, generating $1.14 billion in revenue—a 34% year-over-year increase and the company’s third consecutive billion-dollar period. Operating income expanded 43%, achieving a 41.1% operating margin, while non-GAAP earnings of 39 cents exceeded analyst expectations. These results reflect Arm’s expanding relevance across consumer electronics, telecommunications infrastructure, industrial IoT and autonomous vehicle applications.

Comparative Financial Outlook: Growth Versus Profitability

According to current consensus forecasts, AppLovin projects 18% revenue growth paired with a remarkable 106% earnings expansion this fiscal period. This earnings leverage reflects operational efficiency gains and expanded profit realization from the AI advertising platform.

Arm, conversely, is modeled for 21.5% revenue growth but a more moderate 5.5% earnings-per-share increase—suggesting the company is reinvesting gains into research, licensing expansion and long-term chip architecture development. While both benefit from secular industry tailwinds, AppLovin currently demonstrates sharper near-term earnings acceleration potential.

Valuation Assessment: APP Presents a More Compelling Entry Point

Arm’s forward valuation stands at 65.71x earnings, representing a discount from its 123.45x historical median but still commanding a substantial premium. This valuation anticipates sustained long-term demand from AI proliferation and IoT expansion.

AppLovin trades at a 38.55x forward multiple, only modestly below its 41.48x median benchmark. Given AppLovin’s superior earnings trajectory and improving operational leverage, its valuation appears more attractive relative to near-term profit growth expectations. For investors prioritizing tangible near-term appreciation supported by demonstrated profitability expansion, AppLovin presents a more balanced risk-reward profile. Arm, while strategically positioned for enduring industry trends, carries a valuation structure that leaves less room for multiple expansion until earnings acceleration becomes more pronounced.

Final Assessment: The Stronger Near-Term Contender

Both AppLovin and Arm Holdings remain fundamentally sound technology investments aligned with transformational AI adoption trends. However, AppLovin edges ahead when evaluating relative appeal within current market conditions. Its accelerating earnings profile and expanding operational efficiency suggest greater potential for valuation multiple normalization coupled with genuine profit growth. Arm maintains exceptional strategic positioning and ecosystem strength, but its premium valuation provides less margin for error until the company demonstrates more aggressive earnings progression.

AppLovin therefore emerges as the more compelling opportunity for investors seeking exposure to AI-driven technology innovation with stronger near-term return potential.