Both AppLovin Corporation (APP Quick QuoteAPP - Free Report) and Arm Holdings (ARM Quick QuoteARM - Free Report) are technology-driven companies capitalizing on the AI revolution. AppLovin leverages advanced AI-powered advertising algorithms and app monetization platforms, while ARM underpins AI innovation through its cutting-edge chip architectures that power high-performance AI hardware. This positions both as innovation-centric opportunities aligned with the accelerating adoption of artificial intelligence across industries.

Their common focus on deploying AI to enhance efficiency, scalability and measurable business outcomes places them at the forefront of a transformative technological era, one in which artificial intelligence is increasingly becoming a core driver of competitive differentiation and sustainable long-term growth.

The Case for APP

AppLovin’s unified advertising marketplace continues to showcase significant structural advantages. The integration of MAX’s real-time bidding technology with ongoing Axon 2.0 enhancements has contributed to improved ad targeting, stronger bid density and accelerated operating performance.

A major long-term catalyst remains the company’s opportunity to lift conversion rates from historically low single-digit percentages toward a more normalized higher range over time. This outlook is being supported by broader advertiser diversification outside gaming as well as continued optimization of its AI models.

As additional advertisers join the ecosystem, AppLovin benefits from rising demand, stronger monetization efficiency and favorable take-rate trends, reinforcing the company’s ability to expand market share and drive sustained revenue growth over the long run.

AppLovin’s expansion into web-based and e-commerce advertising represents an important incremental growth opportunity. Although the business remains in the early phases of development, the rollout of self-serve Axon Ads could significantly improve advertiser accessibility and accelerate customer onboarding.

The expected broader availability rollout during the first half of 2026 may become a key turning point, allowing greater adoption from advertisers outside the gaming industry.

At the same time, improvements in generative creative technologies, including interactive landing-page generation and future video-ad tools, are expected to strengthen campaign performance and improve conversion metrics.

Early momentum in prospecting campaigns also indicates that AppLovin is successfully broadening its reach across new customer categories, potentially supporting long-term diversification and additional revenue expansion.

Despite the attractive growth potential, AppLovin’s e-commerce business remains in the early stages and still faces operational hurdles.

The company’s current referral-only onboarding model and conversion dynamics indicate that scaling efforts may require additional time, particularly while management continues refining creative tools and simplifying advertiser onboarding workflows.

In addition, seasonality and gradual rollout schedules could lead to inconsistent revenue contributions from non-gaming advertisers in the near term, potentially slowing diversification progress. Until self-serve onboarding becomes fully available and adoption gains traction, visibility into this segment may remain somewhat limited.

The Case for ARM

ARM’s competitive edge is rooted in a powerful ecosystem that links chip designers, software developers and hardware manufacturers through a reinforcing network effect. Over the years, ARM architecture has become the industry standard for many device makers because of its broad compatibility with leading operating systems, including Android, iOS, Windows and Linux.

This compatibility gives semiconductor companies confidence that ARM-based chips can seamlessly integrate with widely used software environments, applications, and development tools. Consequently, many processor designers continue to rely on ARM as a dependable and scalable platform for next-generation chips.

At the same time, software developers are naturally incentivized to build applications for ARM systems because the architecture reaches an enormous global user base. As more manufacturers adopt ARM technology, the ecosystem expands further, attracting additional developers and reinforcing ARM’s industry leadership.

This self-sustaining cycle has helped ARM establish one of the strongest competitive moats in the semiconductor industry. Today, ARM intellectual property is present in nearly every smartphone worldwide, giving the company unmatched scale in mobile computing and creating high barriers for competitors attempting to gain market share.

ARM has maintained solid momentum in recent quarters. In the fourth quarter of fiscal 2026, ARM generated the highest quarterly revenues in its history, reflecting increasing adoption of ARM-based architectures across cloud computing, artificial intelligence and edge applications.

For fiscal 2026, total revenues increased 23% year over year to a record $4.92 billion. Licensing revenues rose 25% to $2.31 billion, while royalty revenues advanced 21% to $2.61 billion. Non-GAAP earnings per share climbed to a record $1.77.

One of the biggest growth drivers was continued expansion in cloud AI infrastructure. Management stated that data-center royalty revenue more than doubled year over year, supported by growing hyperscaler adoption of ARM-based server processors, networking solutions, DPUs and SmartNIC technologies. ARM also indicated that it now holds close to 50% share among leading hyperscaler cloud compute deployments.

How Do Zacks Estimates Compare for APP & ARM?

According to the Zacks Consensus Estimate, APP is poised to deliver a robust 42% year-over-year increase in sales, along with an impressive 58% surge in earnings per share for 2026, highlighting strong operations and accelerating profitability from its AI-driven advertising platform.

                                                                       Image Source: Zacks Investment Research

In contrast, ARM is expected to report a more modest 21% sales growth and 19% increase in EPS, suggesting a steadier growth trajectory as it continues to scale its licensing model and invest in AI-enabled chip innovation. While both companies are benefiting from secular tech tailwinds, APP's significantly higher earnings momentum may reflect greater short-term operational efficiency and demand capture in the evolving digital advertising landscape.

                                                                  Image Source: Zacks Investment Research

Valuation Favors APP's Balanced Growth and Profitability

Arm Holdings trades at a forward 12-month P/E of 175.65X, well above its median of 123.38X. It still carries a steep premium, reflecting lofty expectations tied to its AI and IoT potential. In contrast, AppLovin’s forward P/E of 25.64X is below its median of 34.89X, suggesting a more grounded valuation. Given APP’s stronger earnings growth outlook and operational momentum, its current valuation appears more attractive. Investors may find better near-term upside in APP, especially as its AI-driven ad tech model continues to convert growth into profitability more effectively.

Verdict: AppLovin Holds the Edge

Both AppLovin and Arm Holdings are well-positioned to benefit from the continued expansion of artificial intelligence, but AppLovin appears to offer the more compelling risk-reward profile at current levels. The company combines strong revenue growth, accelerating profitability, expanding market opportunities, and an increasingly sophisticated AI-driven platform that is gaining traction beyond its traditional gaming roots.

ARM remains a high-quality company with a powerful ecosystem and deep exposure to long-term AI and cloud infrastructure trends. However, much of that potential appears reflected in investor expectations. While both stocks remain attractive AI plays, AppLovin's combination of operational momentum, growth prospects, and more reasonable valuation makes it better for investors seeking AI-driven upside today.

APP and ARM currently carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.