We recently compiled a list of the 10 Best UK Growth Stocks to Buy Now. In this article, we are going to take a look at where ARM Holdings plc (NASDAQ:ARM) stands against the other UK growth stocks.

The start of this year has marked interesting developments for the UK market. The main stock market index has increased 5.86% since the beginning of 2025, and despite global economic uncertainties, UK equities are trading at significant discounts compared to their US counterparts. The valuation gap suggests potential opportunities for growth-seeking investors.

Reflecting on the 2024 market, economic uncertainties and fluctuations were dominating factors, which required investors to examine stock performances more closely. Interestingly, smaller companies performed the best in the UK market, delivering returns of 13.78%, while the larger companies were close behind, with a return of 9.66%. In an unpredictable environment, high institutional and hedge fund ownership in growth companies indicates strong investor confidence, which could mean potential for long-term value creation.

Growth stocks are stocks that tend to outperform the broader market. They are company stocks that are likely to grow at a significantly higher rate than the average growth for the market. These companies often reinvest their profits to fuel further growth rather than paying dividends. Investors are typically attracted to growth stocks due to the potential for attractive capital appreciation over time. More often, these are smaller stocks or startups that gain a sudden uptick due to the industry or tech push.

Growth Stocks Vs Value Stocks

Growth stocks are typically priced higher relative to current earnings due to anticipated future growth. They typically trade at a high price-to-earnings (P/E) ratio. Compared to them, value stocks are priced lower relative to their fundamentals and are seen as undervalued in the market. While growth stocks tend to operate in dynamic industries such as tech, value companies may be in more established industries and offer dividends. In 2024, value investing slightly outperformed growth in the UK, which necessitates the need to create a diversified investment approach.

Identifying Growth Stocks

While most growth stocks are small companies with market potential, they can also be larger firms where the company has a growth mindset and its share values continue to rise. There are still some common traits that all growth stocks share. The foremost characteristic is the company’s constant stronger financial performance compared to its peers. If the company is growing at a percentage higher than the average growth of the market, it has growth potential better than its peers. Secondly, growth stocks are typically companies that have a stronger or unique product line with a loyal customer base. They have investments in technology to build an edge over competitors. With a strong focus on innovation, they ensure they are ahead in the race to capture greater market shares in their industry. They might also be companies that have high potential to grow in the future, perhaps through a market build-up, expecting to reach key milestones in the future.

While these shares can have high potential and, thus, be attractive to investors, they can also be high-risk, with stock expectations going south.

In the current market scenario, growth stocks offer several advantages. Primarily, there is the potential for significant increases in stock value as companies expand. Growth stocks can act as a hedge against inflation, as companies with strong growth can outrun inflation. Positive outlooks and focus on innovative sectors can also accumulate investor interest and elevate stock prices. It is, however, key to consider the inherent risks to avoid drastic declines.

Our Methodology

To compile our list of the 10 best UK growth stocks to buy now, we screened the 20 largest companies in the UK in growth-related industries. We then ranked our choices by revenue growth potential and hedge fund sentiments.

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 373.4% since May 2014, beating its benchmark by 218 percentage points. (see more details here).

A leading semiconductor chip on a computer robot arm, reflecting the technology advances of the company.

ARM Holdings plc (NASDAQ:ARM)

Revenue growth past 5 years: 17.71%

Number of hedge fund holders: 38

British semiconductor and software design company ARM Holdings plc (NASDAQ:ARM) specializes in designing central processing unit cores that implement the ARM architecture, which is widely used across various devices from smartphones to data centers. The company licenses its technology as intellectual property, enabling a vast ecosystem of partners to produce Arm-based processors.

With the rise of AI and increased smartphone usage, the semiconductor industry is experiencing a surge in demand. As a key player, ARM Holdings plc (NASDAQ:ARM) commands a strategic position, which is evident through its collaborations with major tech companies. Arm has secured a significant contract with Meta to develop its chip, which marks a strategic shift from its traditional licensing model to direct chip production.

ARM Holdings plc (NASDAQ:ARM) announced a 19% increase in revenue, reaching $983 million in Q3 2024, surpassing analyst expectations of $949.3 million. Net income for the same period rose to $252 million, an impressive increase of $87 million from the previous year.

ARM Holdings plc (NASDAQ:ARM)'s revenue growth potential is further reflected by its projections for the coming years. Boosted by the demand for chips powering data centers and AI applications, the company expects revenue growth in the mid-20% range in the fiscal 2025. Financial analysts consider it as one of the best UK growth stocks because of its exposure to the generative AI megatrend and its leading ecosystem and pricing power. Arm's impressive licensing performance, driven by growing AI workload demands, will continue to benefit the company.

Overall ARM ranks 1st on our list of the best UK growth stocks to buy. While we acknowledge the potential for ARM as an investment, our conviction lies in the belief that some 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.

 

READ NEXT: 20 Best AI Stock To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap. 

 

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