We recently compiled a list of 8 Most Profitable New Stocks To Invest In. In this article, we will look at where Arm Holdings (NASDAQ:ARM) ranks among the most profitable stocks to invest in.

IPO Market to Bounce Back in 2025

Convergence of significant macroeconomic events anywhere around the globe usually ends up triggering market volatility. Last week was marked by critical factors, including a potential port strike and major jobs reports, and created a perfect storm for short-term fluctuations. Of course, that means that these developments influence investor sentiment and market dynamics significantly.

But even before the heightened uncertainty from last week, geopolitical tensions and recent political debates were already and are still influencing market reactions. Bond prices have fluctuated due to uncertainties. With elections approaching, further market fluctuations are expected. Investors should reassess their portfolios, especially those heavily concentrated in equities. As October began, Tiffany McGhee, CEO and CIO at Pivotal Advisors highlighted the macro events that may spark market volatility at this time. With the potential port strike and major job reports scheduled for release, Tiffany’s opinion was covered in our article on the 7 Cheap New Stocks To Invest In Now. Here’s an excerpt from it:

“Tiffany pointed out that the ongoing conflict in the Middle East and the recent vice presidential debate are critical factors influencing market reactions. She observed that bond prices experienced a sell-off earlier in the week but stabilized as investors sought safety amid rising geopolitical tensions. As the election approaches, she anticipates further short-term volatility due to these developments.

In terms of strategy, Tiffany encouraged investors to reassess their portfolios, particularly those with a heavy concentration in equities. With the S&P 500 up 20% year-to-date and sectors like technology and consumer discretionary having performed well, she suggested that now is an opportune time to take some profits off the table and consider reallocating those funds into different areas of the market.”

In short, Tiffany emphasizes strategic asset allocation and proactive management in capital markets to make informed investment decisions. Later on October 4, Ashley MacNeill, Vista Equity’s head of equity capital markets, joined CNBC’s ‘Squawk on the Street’ to discuss her opinion on the IPO market’s potential to bounce back in 2025, given all the market volatility for the rest of 2024.

Ashley McNeill explained that her responsibilities at Vista include not only taking companies private but also re-IPOing them and engaging with public investors to understand their preferences and concerns. McNeill acknowledged that the market has yet to see a significant number of IPOs. For the IPO market to regain momentum, she emphasized 3 critical factors: a lack of market volatility, stable market conditions, and a risk-on appetite from investors. Most importantly, she highlighted the need for corporations to provide consistency and clarity regarding their business plans and execution strategies. This clarity emerged in 2023, leading her to believe that 2025 could be a promising year for IPOs.

McNeill also discussed the current status of private markets, noting that many companies are choosing to remain private longer due to the availability of capital. She pointed out that approximately 45% of US venture capital-backed firms are poised to go public, which translates to over 350 firms potentially looking to tap into the market. This backlog suggests that if the market returns to normalcy, it could take a decade to clear.

When asked about Vista’s portfolio companies, McNeill noted their resilience in the current high-cost capital environment. The implementation of GenAI has been transformative for many of these companies, positioning software firms to leverage this technology effectively. She characterized the sentiment around software versus AI as one where software is expected to benefit from AI advancements. However, she cautioned that it takes time to realize the measurable impacts of GenAI. She thinks investors need to be patient and look for tangible improvements in business performance attributable to GenAI technology. Growth areas, according to McNeill, include enhancing margins and efficiency and forming partnerships that integrate AI into existing operations. Many software companies are beginning to collaborate more closely to harness this technology effectively.

Methodology

We used the Finviz to compile an initial list of the top stocks that went public in the last 2 years. From that list, we narrowed our choices to 20 companies with positive TTM net income. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.

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).

Arm Holdings (NASDAQ:ARM)

TTM Net Income: $424 million

Number of Hedge Fund Holders: 38

Arm Holdings (NASDAQ:ARM) is a British semiconductor company that designs and licenses the architecture for microprocessors used in electronic devices like smartphones, tablets, and computers. Its technology is widely adopted by chip manufacturers due to its energy efficiency and performance. It has recently been gaining market share in automotive and cloud services.

The company’s partnership with Apple on the iPhone 16 has significantly boosted its stock price. Its leadership in mobile and AI technology is demonstrated by its Axion processor, Ethos-U85, and Windows on Arm. With a strong developer network and growing market presence, it is well-positioned as a foundational compute platform across various sectors. Its recent addition to the PHLX Semiconductor Sector Index reflects its rapid growth and diversification.

Its FQ1 2025 revenue reached a record $939 million, up 39% from the previous year. Licensing revenue grew 72%, and royalty revenue increased 17%. The adoption of Armv9 architecture and a recovering smartphone market drove royalty revenue growth. Smartphone royalty revenue increased over 50% compared to the prior year, even though unit sales only grew slightly. It has a dominant position in mobile applications, with a 99% market share.

The company is integrating its Kleidi AI acceleration technology with PyTorch and ExecuTorch to bring AI and machine learning workloads to Arm-based hardware, enabling Arm CPUs to run LLMs. Its latest processor design, v9, features significant upgrades that have doubled its take rate. Its strong market position, innovative technology, and strategic partnerships position it for continued growth.

Overall ARM ranks 3rd on our list of the most profitable stocks to invest in. While we acknowledge the growth potential of ARM, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. 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 on Insider Monkey.