ARM vs. APP: Which AI-Exposed Tech Stock is a Better Buy Right Now?

AppLovin (APP) is presented as a more compelling AI-exposed tech investment compared to Arm Holdings (ARM), despite both benefiting from AI sector growth. AppLovin demonstrated strong Q2 2025 performance with revenues up 77%, EBITDA up 99%, and net income surging 156%, driven by its AI engine Axon 2, and trades at a more attractive forward P/E of 39.36x. Conversely, Arm Holdings, a foundational AI chip architecture provider, faces significant risk from increasing RISC-V adoption in China, its second-largest market, and carries a higher valuation at 73.32x forward P/E, positioning APP as a preferred buy due to its superior earnings growth and operational efficiency.

Analysis

A comparative analysis of AppLovin (APP) and Arm Holdings (ARM) reveals a significant divergence in near-term investment appeal, despite both leveraging the secular growth in artificial intelligence. AppLovin demonstrates superior operational execution and financial momentum, driven by its Axon 2 AI engine. This is quantified by its Q2 2025 results, which included a 77% year-over-year revenue increase, a 99% surge in adjusted EBITDA, and a 156% jump in net income. Projections reinforce this strength, with consensus estimates pointing to a 98% earnings surge for the current year. Conversely, Arm Holdings, while a foundational player in AI chip architecture, faces considerable headwinds. Its significant exposure to China is a key vulnerability, particularly with the rising adoption of the open-source RISC-V architecture, which is reportedly set to receive formal backing from the Chinese government. This geopolitical and competitive risk is coupled with a weaker financial outlook, with projected EPS growth of only 3% despite 18% sales growth. The valuation disparity is stark: APP trades at a 39.36x forward P/E, which appears reasonable given its growth, while ARM commands a steep premium at 73.32x, creating a less favorable risk-reward profile.

Key Decisions for Investors

• Given AppLovin's demonstrated ability to translate its AI platform into substantial profit growth and its more attractive forward P/E of 39.36x, investors may find it a more compelling vehicle for AI exposure with stronger near-term fundamental support.
• Investors in Arm Holdings should closely monitor the adoption rate of RISC-V architecture in China, as state-backed promotion of this open-source competitor represents a significant long-term risk to ARM's growth and its premium valuation.
• Consider the potential for a pair trade, favoring a long position in AppLovin (APP) against an underweight or short position in Arm Holdings (ARM), to capitalize on the diverging fundamentals, valuation multiples, and geopolitical risk profiles.
• The valuation of ARM at a 73.32x forward P/E warrants scrutiny, as its modest projected EPS growth of 3% may not justify such a premium, suggesting a risk of multiple compression if competitive pressures from RISC-V intensify or growth in China remains muted.