Meet the Newest AI Stock in the Nasdaq-100

The ever-evolving landscape of stock market investments has recently seen the entry of a remarkable player: AppLovin (NASDAQ: APP). On November 18, this mobile advertising company officially joined the prestigious Nasdaq-100 index, replacing Dollar Tree. In a feat that may catch the attention of astute investors, AppLovin has experienced an astonishing surge in its share price—growing by a staggering 2,140% over a two-year period. This remarkable performance significantly outpaces the returns of tech giants like Nvidia. With nearly 79% of the 29 analysts following the company rating it as a buy, and a recent target from Piper Sandler forecasting a price of $400 per share, AppLovin is rapidly emerging as a noteworthy stock in the AI sector.

Understanding AppLovin: A Rising Star in Ad Tech

AppLovin stands out in the advertising technology sector due to its powerful artificial intelligence engine, Axon. This platform is designed to assist mobile app and connected TV (CTV) content publishers in effectively finding and monetizing users. The company structures its business model into two main segments: software platforms and apps. Notably, software platforms contribute approximately 70% of AppLovin’s revenue, while the app segment accounts for the remaining 30%.

Exploring the Two Key Business Segments

Software Platforms

At the core of AppLovin’s offerings lies AppDiscovery, a tool that leverages the AI engine Axon to help mobile app publishers connect with potential users. As more users engage with the platform, Axon enhances its capabilities, creating a self-learning network effect that optimizes user acquisition. Additionally, the company offers software solutions for in-app and CTV advertising, further solidifying its foothold in the market.

Apps

AppLovin boasts an impressive portfolio comprising over 200 free-to-play mobile applications. The company utilizes its proprietary software to drive marketing, monetization, and growth strategies through in-app purchases and advertising. Furthermore, AppLovin is diversifying its revenue streams by licensing its AI technology to other stakeholders. A prime example of this expansion is the recent integration of its Axon engine by the fast-growing social commerce platform Flip, which aims to provide brands with more targeted consumer engagement.

AppLovin’s Rapid Growth and Solid Projections

In its recent third quarter financial report, AppLovin demonstrated continued momentum, reporting a remarkable 39% year-over-year revenue increase, totaling $1.2 billion. This growth is primarily attributed to a significant uptick in the software platforms segment. Notably, the company’s GAAP net income soared (>fourfold), reaching $1.25 per diluted share, indicating a robust operational performance.

As part of its expansion, AppLovin introduced a new web advertising product designed to target e-commerce brands and connect them with mobile app users and CTV viewers. The product is currently in a pilot phase, but according to CEO Adam Foroughi, it has the potential to become a major revenue driver by 2025. Additionally, the launch of Axon 2.0, designed to enhance targeting capabilities, was highlighted as a key contributor to the company’s strong performance. CEO Foroughi expressed confidence in the company’s growth trajectory, projecting an ongoing 20% to 30% year-over-year growth for the foreseeable future.

Looking Ahead: Analyst Expectations and Stock Valuations

Wall Street analysts are bullish on AppLovin, expecting earnings to surge by 60% in the next 12 months and maintain a robust annual growth rate of 45% through 2026. Against this backdrop, the current valuation of 98 times earnings appears reasonable, although not inexpensive. Investors with a higher risk tolerance might consider establishing a position in this newly minted Nasdaq-100 stock, albeit with caution, as market volatility is likely to persist.

Ultimately, while the allure of investing in AppLovin is undeniable, it may be prudent to look for buying opportunities during market dips. With AI technology increasingly integral to the future of advertising, AppLovin’s innovative approach positions it favorably for further growth in both revenue and share price.