We recently compiled a list of the 10 AI News Updates Making Waves on Wall Street. In this article, we are going to take a look at where Arm Holdings plc (NASDAQ:ARM) stands against the other AI stocks.

The evolving space of AI has been a major focus these days, as experts and executives are weighing in on how it is reshaping the tech sector. From the rise of open-source models to the shift towards AI agents that perform tasks autonomously, AI is quickly transforming industries. Advancements in large language models are continuing to progress and companies are rethinking their strategies, with some seeing AI as a commodity and others exploring new ways to harness its potential. At the same time, regulatory shifts and market reactions to these technological developments, like the introduction of DeepSeek's R1 model, are creating both opportunities and challenges for the future of AI in tech.

AI Investments and the Future of Tech Stocks

Financial Markets analyst, Fiona Cincotta recently discussed AI's impact on tech earnings and the regulatory environment under the new Trump administration on Bloomberg Technology. She highlighted that AI continues to be the main focus for investors, who are eager to see returns from the significant investments made in the sector. The optimism surrounding AI has helped maintain high stock valuations, as investors expect the potential for cost reductions in the future. However, Cincotta noted a divergence between software and hardware companies, with software firms benefiting from fewer restrictions, while chipmakers could face challenges due to tariffs and export limitations.

When talking about regulation, Cincotta mentioned that a potential reduction in regulation under the new administration could benefit the tech industry, especially in AI, where regulation is still an open question. She suggested that decreased regulation would likely boost stock prices in the tech sector.

She also discussed investor expectations, especially the pressure to see results from AI investments. While AI spending is still seen as crucial, the recent unveiling of DeepSeek raised questions about the sustainability of such investments. Investors are optimistic for now, but as we approach mid-2025, they will expect stronger revenue streams and profit margins. She pointed out that some Big Tech stocks are under scrutiny, with investors looking for solid financial returns as a measure of success. Nevertheless, the Mag7 tech stocks remain a focal point for investor interest.

For this article, we selected AI stocks by reviewing news articles, stock analysis, and press releases. We listed the stocks in ascending order of their hedge fund sentiment taken from Insider Monkey’s database of 900 hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A close-up of a technician's hands working on an advanced semiconductor substrate.

Arm Holdings plc (NASDAQ:ARM)

Number of Hedge Fund Holders: 38

Arm Holdings plc (NASDAQ:ARM) develops and licenses semiconductor technologies, including microprocessors and system IPs, for different industries like automotive, computing, and IoT.

On February 6, UBS reiterated its Buy rating on Arm (NASDAQ:ARM) with a price target of $215, after strong December quarter results. The March quarter guidance aligns with UBS and consensus estimates. The main positives include AWS Graviton processors exceeding 50% market share, improved networking equipment sales, and accelerating demand for Compute Subsystems, which are now contributing to smartphone royalty growth. Arm is also set to benefit from the rise in custom ASICs for hyperscalers and continues to invest in growth, with AI driving expansion in major markets, especially in data centers and smartphones.

Overall ARM ranks 3rd on our list of the AI stocks that are making waves on Wall Street. While we acknowledge the potential of ARM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.