Meet the Newest AI Stock in the Nasdaq-100: AppLovin

The Nasdaq-100 has recently welcomed a new member: AppLovin (NASDAQ: APP). As a mobile advertising company that employs advanced artificial intelligence (AI) technology, AppLovin has seen its stock price skyrocket by an astonishing 2,140% over the past two years, significantly outpacing even tech giants like Nvidia. With such remarkable growth, a majority of Wall Street analysts maintain an optimistic outlook on the stock.

AppLovin Joins the Elite Ranks of Nasdaq-100

On November 18, 2023, AppLovin replaced discount retailer Dollar Tree in the Nasdaq-100, tracking the largest non-financial firms on the Nasdaq Stock Market. The surge in AppLovin’s share price has caught the attention of analysts and investors alike, with 79% of the 29 analysts covering the stock rating it as a buy. James Callahan of Piper Sandler, a prominent Wall Street analyst, has even set a target price of $400 per share—indicating a potential upside of around 25% based on current prices of approximately $321.

What Makes AppLovin Stand Out?

For those unfamiliar with AppLovin, it’s essential to understand that the company utilizes a powerful AI engine to assist mobile app and connected TV (CTV) content publishers in finding and monetizing users effectively. AppLovin’s business is segmented into two main areas:

Software Platforms: A Key Revenue Driver

Software platforms contribute about 70% of AppLovin’s total revenue. The flagship product, AppDiscovery, leverages its AI engine, known as Axon, to optimize the user acquisition process for mobile app publishers. This self-learning AI becomes increasingly proficient in matching supply with demand, creating a robust network effect. Additionally, AppLovin provides software solutions for in-app advertising and CTV advertising.

Expanding Portfolio of Applications

On the other hand, the company operates over 200 free-to-play mobile applications, utilizing its own software to enhance user engagement via in-app advertising and purchases. Notably, AppLovin has started licensing its AI technology to external companies, enhancing its market position. For instance, the fast-growing social commerce platform Flip has integrated AppLovin’s Axon engine to provide brands with more relevant content for consumers.

Impressive Financial Outlook

AppLovin’s financial performance has been nothing short of impressive, particularly in the third quarter of 2023 when it beat estimates on both revenue and earnings. The company reported a total revenue increase of 39% to $1.2 billion, primarily fueled by robust growth within its software platforms. Furthermore, GAAP net income saw a more than fourfold increase, coming in at $1.25 per diluted share.

CEO Adam Foroughi noted in the third-quarter earnings call that the company recently introduced a web advertising product that allows e-commerce brands to reach mobile app users and CTV viewers. This product, still in its pilot phase, is expected to play a significant role in revenue generation by 2025. Foroughi expressed optimism regarding the company’s prospects, maintaining that the second-quarter launch of the upgraded AI engine, Axon 2.0, significantly contributed to the exceptional growth experienced in Q3.

Valuation and Future Growth

The market currently expects AppLovin’s earnings to increase by 60% over the next 12 months, with annual growth forecasts of 45% through 2026. Given this context, while AppLovin’s current valuation of 98 times earnings may not be considered cheap, it is still deemed tolerable. Investors with a higher risk appetite might consider taking a small position in this newly minted Nasdaq-100 stock. However, caution is advised, and waiting for potential dips before making a purchase may be a prudent strategy.

Final Thoughts

AppLovin represents a compelling opportunity in the realm of AI-driven technology stocks. With its robust performance metrics, strong analyst ratings, and promising future growth prospects, the company is gaining traction among investors who wish to capitalize on the evolving digital advertising landscape. For those eyeing the AI sector, AppLovin could very well be a stock worth following.