Two AI Giants in Focus: AppLovin and Arm Holdings Present Compelling Yet Different Investment Narratives

In today’s AI-powered technology landscape, both AppLovin Corporation (APP) and Arm Holdings plc (ARM) have emerged as compelling contenders for growth-oriented investors. Yet these two firms operate through distinctly different mechanisms. While AppLovin drives AI innovation through advertising technology and platform optimization, Arm Holdings powers the semiconductor architecture underlying next-generation computing. Understanding which opportunity appears more compelling requires examining both the near-term financial trajectory and long-term positioning within the AI ecosystem.

The Financial Picture: Where Momentum Currently Stands

Recent financial performance tells a revealing story about near-term versus longer-term growth dynamics. AppLovin’s third-quarter results demonstrated exceptional operational leverage: revenues reached $1.41 billion (up 68% year-over-year), while adjusted EBITDA climbed 79% to $1.16 billion at an impressive 82% margin. Free cash flow surged 92% to $1.05 billion, illustrating how effectively the business converts revenue growth into actual profit.

Arm Holdings’ second-quarter performance, while solid, reflected a more measured expansion. The company posted $1.14 billion in revenue (34% year-over-year growth) with operating income rising 43% to achieve a 41.1% margin. These numbers underscore Arm’s increasingly central role in powering AI workloads, yet the growth trajectory shows a different character than AppLovin’s explosive momentum.

Forward estimates reveal the divergence more starkly. AppLovin is projected to deliver 18% revenue growth alongside a striking 106% earnings expansion this year—indicating powerful operational leverage as the platform scales. Arm, by contrast, faces expectations of 21.5% revenue growth but only 5.5% EPS growth, reflecting the company’s more gradual earnings expansion despite robust top-line momentum.

Why AppLovin’s Business Model Appears Particularly Compelling Right Now

AppLovin has positioned itself at the intersection of AI sophistication and market demand for advertising optimization. The platform leverages machine learning to predict user behavior, refine ad placements and maximize advertiser ROI. This technological approach resonates particularly well in a landscape where digital ad spending demands greater efficiency.

The company’s strategic focus spans multiple dimensions: enhanced advertiser onboarding, AI-powered support tools, generative AI capabilities for ad creation and expansion of its Axon Ads platform. Each initiative aims to broaden AppLovin’s addressable market beyond its historically gaming-centric base. MAX, the supply-side platform, continues gaining traction through rising advertiser demand and increasingly effective campaign performance.

What makes AppLovin’s position particularly compelling is how incremental revenue translates directly into profit expansion. The business model demonstrates exceptional scale advantages—nearly every incremental dollar of revenue becomes incremental profit, a characteristic that typically supports valuation multiples.

Arm’s Long-Term Competitive Positioning Within AI Infrastructure

Arm Holdings occupies a structural position of rising importance within AI hardware development. The company’s partnerships and ecosystem expansions paint a picture of expanding influence. The recently announced collaboration with Meta aims to enhance AI efficiency across the entire compute spectrum, from wearables and mobile devices to hyperscale data centers.

Major technology platforms now showcase Arm’s architectural influence: NVIDIA’s Grace, AWS’ Graviton, Google’s Axion and Microsoft’s Cobalt all utilize Arm-based designs. Google’s Axion, for instance, delivers up to 65% better price performance while reducing energy consumption by 60%—a compelling demonstration of Arm’s value proposition for cost-conscious hyperscalers.

The company’s Compute Subsystem (CSS) designs fundamentally reshape chip development economics by reducing both time-to-market and technical risk. The Lumex CSS platform represents Arm’s most advanced mobile AI architecture, powering upcoming flagship devices from OPPO and vivo with capabilities including real-time translation and enhanced on-device AI processing.

Valuation: A Compelling Case for AppLovin in the Near Term

The valuation landscape highlights why AppLovin currently presents a more compelling near-term opportunity. Arm trades at a forward P/E of 65.71x—lower than its historical median of 123.45x but still representing a meaningful premium. This elevated valuation reflects high expectations for long-term AI chip adoption, yet leaves limited room for valuation expansion.

AppLovin trades at 38.55x forward earnings, only slightly below its historical median of 41.48x. Given the company’s accelerating earnings growth trajectory and rising operational efficiency, the valuation appears more reasonably aligned with near-term performance expectations. The company’s stronger earnings momentum suggests clearer potential for valuation reassessment to reflect future performance capabilities.

The Investment Case: Competing Narratives, Complementary Positioning

Both companies remain fundamentally sound participants in transformative AI trends. AppLovin’s advertising platform and operational efficiency gains create a more compelling case for near-term value expansion. The trajectory of 106% projected earnings growth, combined with reasonable current valuation levels, positions the company as the relatively stronger contender for investors focused on nearer-term catalysts.

Arm Holdings, meanwhile, commands its premium valuation based on legitimate long-term secular demand and ecosystem strength. The company’s architectural influence across cloud, mobile, data center and edge computing ensures sustained relevance within AI infrastructure development. However, that premium currently leaves less flexibility for appreciation until earnings growth more visibly accelerates.

For investors evaluating which opportunity appears more compelling at current market conditions, AppLovin edges ahead through its combination of stronger near-term earnings momentum and more reasonable valuation positioning. Arm remains a powerful long-term infrastructure play, yet AppLovin’s operational trajectory offers a more compelling risk-reward profile in the immediate investment horizon.