NvidiaNVDA

may have dominated the headlines as the go-to tech stock, but AppLovinAPP

has become the underdog investors have fallen head over heels for. Far and away the best-performing stock in the tech-heavy Nasdaq 100, up 700% this year, the one-time gaming champion has made its billions with a fairly predictable (and lucrative) angle of attack — AI and advertising.

AppLovin levels up: AppLovin has transformed from a gaming company into a comprehensive platform that blends gaming with advertising. The mobile advertising behemoth helps game developers monetize through in-app ads while offering advertisers targeted opportunities within popular titles like Legend of Slime and Sushi Roll 3D. Its software segment, which helps mobile game developers optimize marketing spend, boasts adjusted EBITDA margins of 73% — surpassing Meta’sMETA

51% in advertising. This impressive performance and strategic innovation have captured Wall Street’s attention.

• In Q3 2024, revenue surged 39% to $1.2B, while net income skyrocketed 300% to $434.4M — showcasing the enterprise’s ability to convert growth into meaningful profits.
• Its software platform revenue jumped 66%, driven by its AI-powered AXON 2.0 advertising engine, which has demonstrated remarkable efficiency in ad targeting and delivery.

Beyond the Gaming Realm

AppLovin is currently expanding its presence by piloting an invite-only e-commerce advertising program focused on direct sales and product promotions, a shift from its gaming-focused ad model. During Black Friday, some brands invested over $100K daily on its platform, indicating its potential as an emerging alternative to performance advertising giants like Google and Meta. However, AppLovin missed a spot in the S&P 500 during the latest index reshuffle, leading to a sharp decline in its stock price.

• Despite the S&P 500 setback, the mobile ad platform continues to lead the Nasdaq 100, with analysts viewing the recent dip as a strong investment opportunity.
• Even Wall Street remains bullish on AppLovin, with analysts boosting next quarter’s earnings estimates by 28.7% to $1.24 per share, a 153% year-over-year increase.

The plot thickens: Although AppLovin’s AI algorithms have proven highly effective in mobile gaming, expanding into non-gaming sectors like e-commerce advertising presents challenges, including stiff competition from tech trailblazers. These areas require sophisticated ad technologies to attract and retain customers outside the gaming industry. The real test lies in maintaining its effectiveness as more advertisers join the platform, increasing competition and ad prices. Still, Wells Fargo and Loop Capital are optimistic, projecting stock price increases of 6.5% and 33.1%, respectively, from current levels — suggesting AppLovin is set to capture more hearts in 2025.