We recently compiled a list of the 10 Best UK Stocks to Invest in Now. In this article, we are going to take a look at where Arm Holdings plc (NASDAQ:ARM) stands against the other best UK stocks.
The OBR (Office for Budget Responsibility) anticipates economic output in Britain to expand by 1.8% in 2026 and by 1.5% in 2027. In September 2024, KPMG reported that The Bank of England might take a more cautious approach when it comes to easing monetary policy as compared to the Fed and the ECB, with gradual cuts resulting in the UK base rate to 3.5% by 2025 end.
Furthermore, the labour market will continue to loosen, with fewer vacancies, and subdued pay growth but a relatively modest rise in the unemployment rate. KPMG went on to add that business investment might see some recovery next year if geopolitical uncertainties ease and the impact of reduced rates and the improving growth outlook offer businesses the confidence to commit to their investment plans.
What to expect from the UK Economy?
As per the new EY ITEM Club Autumn Forecast, the UK economy should grow 0.9% in 2024, down from the 1.1% growth expected in July’s Summer Forecast. The downgrade exhibits that household savings are now lower than expectations, providing less scope for consumers to increase their spending. Furthermore, lower-than-anticipated increases in consumer spending, together with cautious rate cuts to the Bank Rate, demonstrate that UK growth is expected to be steady rather than rapid over the upcoming 2 years.
EY added that business investment is expected to accelerate moderately in the coming years, with rate cuts providing a boost to the private sector. Therefore, the UK business investment should grow to 1.3% in 2024, an increase from the 1% expected earlier. Private sector investment is anticipated to accelerate to 3% in 2025, demonstrating a small downgrade from projections of 3.2% growth in its Summer Forecast.
Inflation Outlook for the UK Economy
EY expects that inflation is expected to average 2.6% in 2024 before falling marginally to 2.5% in 2025 and 2.1% in the following year. The firm believes that this ‘stickiness’ is because of several factors, such as tightness in the broader labour market, and the gradual slowing of pay growth. With spending growth anticipated to be lower than the earlier expectations because of reduced household saving rates, it projects consumer spending to rise by 0.8% in 2024.
EY expects that gradual cuts to the Bank Rate might provide some benefits to the UK’s housing market. It projects house price growth of 1.7% in 2024, and 2.1% in 2025, with declining borrowing costs anticipated to help offset other affordability challenges. Notably, the looser monetary policy is expected to have a modest impact on growth over the short term. Several borrowers on fixed rates will not experience the decline in their mortgage payments and a significant minority might refinance a fixed mortgage to a higher rate, despite a decline in Bank Rate.
Our Methodology
To list the 10 Best UK Stocks to Invest in Now, we used a screener to extract UK stocks. Next, we narrowed our list by selecting the ones having high hedge fund holdings. Finally, the stocks were ranked in an ascending order of their hedge fund sentiments, 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).
A professional financial analyst studying data on a computer, illustrating the company’s index investment decisions.
Arm Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Holders: 38
Arm Holdings plc (NASDAQ:ARM) designs and manufactures semiconductor technology and other related products such as computer processors, memory controllers, and storage devices. The company is headquartered in Cambridge, the United Kingdom.
Arm Holdings plc (NASDAQ:ARM)’s competitive advantage stems from the intangible assets and switching costs. The company’s strategic positioning in AI applications should continue to aid its growth prospects. As and when the demand for AI-capable devices grows throughout sectors, Arm Holdings plc (NASDAQ:ARM)’s chip designs will be preferred for their energy efficiency and performance characteristics. The adoption of its latest v9 architecture should drive increased royalty rates, potentially doubling the rate as compared to the previous v8 architecture.
Edge AI and the IoT offer additional avenues for expansion. As more devices need AI processing capabilities at the edge, Arm Holdings plc (NASDAQ:ARM)’s energy-efficient designs remain well-positioned to tap this growing market. Furthermore, its expansion into the data center market provides a significant growth opportunity.
Wall Street believes that Arm Holdings plc (NASDAQ:ARM)’s architecture remains well-suited for cloud computing workloads, providing a balance of performance and power efficiency. The company’s technological moat with energy-efficient designs and strategic positioning in AI and edge computing are some of its key strengths.
Arm Holdings plc (NASDAQ:ARM)’s ecosystem of software and design partners remains unprecedented. Its ecosystem of over 20 million software developers is the largest compute ecosystem. The company continues to increase investment in its ecosystem throughout all market segments. More Arm software developers result in more demand for the Arm compute platform, creating a virtuous cycle of demand.
Overall, ARM ranks 6th on our list of the 10 Best UK Stocks to Invest in Now. While we acknowledge the potential of ARM as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
