Is Applovin Stock a Buy Now?

Applovin (NASDAQ: APP) has left shareholders head over heels with an enchanting 379% return over the past year. The advertising technology (adtech) giant has emerged as a fantastic growth story, capturing strong demand for its suite of mobile marketing solutions powered by artificial intelligence (AI).

Yet despite some very impressive financial trends, the stock has been volatile at the start of 2025, down about 23% in the past month. Is the market's romance with Applovin a fleeting affair, or is this dip an opportunity to make it official? Here's what investors need to know.

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The game-changing AXON AI engine

If you've ever played a mobile game and noticed a pop-up ad, there's a good chance Applovin's technology is behind it. These aren't just those old-school banners. Several innovative in-game formats, like videos that reward users for watching and playable demos to drive downloads, have become staples of the "free-to-play" game industry. The company helps developers monetize their apps with a seamless user experience.

AppLovin's MAX marketplace is a bidding platform where advertisers compete in real-time auctions to place ads in apps. The company's breakthrough has been the success of its latest AXON 2.0 AI engine, which uses machine learning and advanced algorithms to match ads with the optimal audience, boosting engagement and conversions.

From the recent fourth-quarter earnings report, full-year revenue soared 43% from a year ago to $4.7 billion, with management highlighting AI's transformative impact. Remarkably, even with this top-line surge, total expenses rose just 8%, as Applovin scaled up effectively with a lean operational structure by leveraging AI and automation in its internal workflows. This dynamic translated into 343% net income growth from 2023, which helps explain the stock's performance.

The expectation is for further growth in 2025. Wall Street analysts tracked by Yahoo! Finance project that Applovin will grow revenue by a solid 21% this year alongside an estimated 69% increase in earnings per share (EPS) to $7.65.

Image source: Getty Images.

Applovin growth initiatives for 2025

An important development this year was the announcement that Applovin is selling its in-house mobile gaming portfolio and publishing unit in a deal valued at $900 million. The effort allows the company to better focus on its core AI-powered advertising platform.

The strategy involves diversifying into new industry ad verticals outside of gaming, including the lucrative connected TV (CTV) ads leveraging its AXON 2.0 to target the significant opportunity to support streaming video platforms, targeting the market high-profile adtech competitors like The Trade Desk and Magnite have specialized in. Separately, Applovin is moving forward with its e-commerce initiative, building on its 2024 pilot by integrating AXON to deliver targeted product ads within its mobile app network, aiming to capture a slice of the online shopping ad market.

The company's outlook helps justify its valuation, with shares trading at 36 times analysts' consensus 2025 EPS forecast. While this level represents a premium to industry peers such as The Trade Desk (at a P/E ratio closer to 30), the advantage of Applovin's stock is its stronger earnings growth as it dominates the mobile ad space. Applovin's ability to grab market share from its peer group with leadership in AI tools could be the key for the stock to continue climbing.

APP PE Ratio (Forward) data by YCharts

A buy-the-dip opportunity

With its bold strategic moves and hypergrowth results, I'm bullish on Applovin stock and believe the company is just getting started in its evolution into a more durable and versatile advertising powerhouse. I predict shares will rebound with more upside into 2025 and beyond.

That said, Applovin's high bar of expectations in the market carries a layer of risk to consider. If economic conditions slow, it could pressure mobile advertising rates, leading the company to underperform financial estimates and drag the stock lower. For investors unfazed by market swings, Applovin is a great option for tech sector and AI exposure to complement a diversified portfolio for the long run.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin and The Trade Desk. The Motley Fool recommends Magnite. The Motley Fool has a disclosure policy.