Meet the Newest AI Stock in the Nasdaq-100. It Soared 2,140% in 2 Years and Is Still a Buy, According to a Wall Street Analyst.

The Nasdaq-100 tracks the 100 largest non-financial companies on the Nasdaq Stock Market. On Nov. 18, mobile advertising company AppLovin (NASDAQ: APP) joined the index, replacing discount store Dollar Tree.

AppLovin has been one of the fastest-growing stocks on the market. Its share price surged 2,140% during the last two years, more than doubling Nvidia's return during that period. Yet among the 29 analysts that follow the company, 79% still rate the stock a buy.

Moreover, James Callahan at Piper Sandler recently initiated coverage on the company with a target price of $400 per share. That forecast implies 25% upside from its current share price of $321. Read on to learn more about this supercharged artificial intelligence (AI) stock.

Never heard of AppLovin? It's an ad tech company with a powerful artificial intelligence (AI) engine

AppLovin is an ad tech company that uses a powerful artificial intelligence (AI) engine to help mobile app and connected TV (CTV) content publishers find and monetize users. The company breaks its business into two segments: software platforms and apps. The former accounts for about 70% of revenue, while the latter accounts for about 30%.

• Software platforms: AppLovin's primary product is AppDiscovery, which leans on its AI engine Axon to help mobile app publishers attract users. Axon becomes increasingly good at matching demand with suitable supply as usage increases, creating a network effect referred to as self-learning. The company also sells software for in-app advertising and CTV advertising.
• Apps: AppLovin operates a portfolio of over 200 free-to-play mobile applications. The company uses its own software to market, monetize, and grow those applications through in-app purchases and in-app advertising.

Importantly, AppLovin has also started licensing its artificial intelligence technology to other companies. The fast-growing social commerce platform Flip recently integrated AppLovin's Axon engine to help brands reach consumers with more relevant content.

AppLovin is growing like wildfire, and the valuation is tolerable

AppLovin reported phenomenal financial results in the third quarter, beating estimates on the top and bottom lines. Total revenue increased 39% to $1.2 billion, primarily driven by robust sales growth in the software platforms segment. And GAAP net income more than quadrupled to reach $1.25 per diluted share.

In the second quarter, AppLovin introduced a web advertising product in pilot that lets e-commerce brands reach mobile app users and CTV viewers. On the third-quarter earnings call, CEO Adam Foroughi provided an encouraging update, saying it was not only the "best product," but also the "fastest growing" product the company has released. While the product is still in pilot today, he expects e-commerce advertising to be an impactful source of revenue by 2025.

Additionally, AppLovin introduced a new version of its AI engine (Axon 2.0) with improved targeting in the second quarter. CEO Adam Foroughi highlighted that as a key driver of the company's strong third-quarter performance, and provided an upbeat outlook:

Last quarter, I shared our confidence in achieving 20% to 30% year-over-year growth for the foreseeable future. We continue to expect 4% to 5% quarterly growth through self-learning and market growth, with occasional step changes resulting from enhancements to our Axon algorithm. This quarter, we saw one of those step changes, with meaningful growth driven by advancements to Axon.

Wall Street expects AppLovin's earnings to climb 60% in the next 12 months, while increasing at 45% annually through 2026. In that context, the current valuation of 98 times earnings looks tolerable, but certainly not cheap.

investors comfortable with volatility can consider buying a small position today in this newly minted Nasdaq-100 stock. However, it may be more prudent to wait for opportunities to buy on the dip.

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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends AppLovin and Nvidia. The Motley Fool has a disclosure policy.