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 second-quarter revenues increased 52.4% year over year to $1.92 billion, representing exceptional growth. This suggests that the company’s advertising technology and AI-powered optimization capabilities continue to attract substantial spending. Revenues also rose about 4% sequentially, indicating the business continued expanding even before recently deployed model improvements began contributing meaningfully.

APP delivered second-quarter adjusted earnings of $3.76 per share, increasing 66.4% year over year. Sequential EPS growth of 5.6% further indicates that profitability continued to improve even during a quarter characterized by delayed model enhancements. The ability to produce earnings growth considerably faster than most large technology companies supports the strength of AppLovin’s advertising platform and cost structure. Continued earnings outperformance could also help rebuild investor confidence if upcoming revenue growth aligns more closely with expectations.

Consumer-advertiser spending reached a record level and stood 28% above fourth-quarter 2025, indicating that AppLovin is gaining traction beyond its traditional gaming customer base. Expanding into broader consumer advertising could materially enlarge the company’s addressable market and reduce its long-term dependence on gaming-model improvements. Management’s gradual focus on mid-market advertisers may also support more disciplined onboarding, allowing AppLovin to prioritize customers that fit the platform’s present capabilities.

Partnerships, improved creative tools and better data integration could eventually make the platform accessible to a wider group of smaller advertisers. Lead generation and connected television provide further potential avenues for expansion. These businesses remain early, but successful execution could create multiple growth engines and make AppLovin’s revenue base broader, more resilient and less concentrated over time.

The Case for ARM

Arm’s strategic improvement is the widening reach of its architecture beyond smartphones. Cloud servers, AI-enabled personal computers, intelligent vehicles, robotics and industrial automation now provide routes for licensing and royalty growth. This matters because the company’s historical dependence on mobile-device volumes exposed results to handset replacement cycles and uneven consumer demand. A broader market mix can materially reduce that concentration while increasing the number of chips containing Arm technology.

These opportunities also share a common requirement: high computing performance delivered within tight power and thermal limits. ARM’s established focus on energy efficiency therefore transfers effectively across multiple end markets instead of relying on a different technical proposition. The transition should not be viewed merely as diversification for its own sake. It creates several long-duration growth engines tied to cloud investment, edge intelligence, automation and connected devices, giving the company more ways to compound revenues even when an individual market temporarily slows.

Cloud infrastructure is becoming the strongest driver of Arm’s growth as hyperscale providers increase deployment of custom processors based on the Neoverse architecture. AI workloads demand enormous computing capacity, but data-center operators must also control electricity, cooling and physical infrastructure costs. Processors that deliver competitive performance with lower power consumption can therefore create savings across large server fleets. Arm benefits without needing to manufacture every finished chip because customers and semiconductor partners incorporate its architecture into internally designed platforms.

The Arm AGI CPU platform could become a new monetization channel beyond the company’s traditional licensing model. Management has indicated that customer demand has expanded after launch, manufacturing capacity has been secured and discussions with additional customers continue to advance. Those signals suggest that the product addresses a requirement for efficient, AI-oriented computing rather than representing a purely experimental initiative. A more complete CPU offering may allow Arm to capture greater value from its intellectual property and deepen relationships with large customers seeking deployable solutions.

It could also provide insight into workload requirements, helping guide future architecture and software development. Successful execution would give Arm a more balanced model combining ecosystem-wide royalties with targeted products serving high-value AI infrastructure demand.

How Do Estimates Compare for APP & ARM?

According to the Zacks Consensus Estimate, APP is poised to deliver a robust 40% year-over-year increase in sales, along with an impressive 57% 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 22% sales growth and a 24% increase in EPS, suggesting a steadier growth trajectory as it continues to scale its licensing model and invest in AI-enabled chip innovation.

                                                                  Image Source: Zacks Investment Research

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.

Valuation Favors APP's Balanced Growth and Profitability

Arm trades at a forward 12-month P/E of 107.7X, well below its median of 137.37X. It still carries a steep premium, reflecting lofty expectations tied to its AI and IoT potential. In contrast, AppLovin’s forward P/E of 16.13X is below its median of 27.57X, 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 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 a 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.