This Hot Stock Is Up 425% and Got Added to the S&P 500 Today. Still Time to Buy?

Rocket Ride From Niche Player to Index Star

Gaming and mobile app advertising company AppLovin (NASDAQ:APP) has been a rocket ride for investors, as its stock surged 425% over the past year. Fueled by the 2023 launch of its Axon 2.0 engine for hyper-targeted ad placements, ad efficiency increased and delivered 74% year-over-year revenue growth to $2.4 billion for the first six months of 2025. Adjusted EBITDA margins also hit an eye-popping 81%, due to e-commerce expansions and an international push into high-intent markets.

Today, though, AppLovin joins the S&P 500 alongside Robinhood Markets (NASDAQ:HOOD) and EMCOR Group (NYSE:EME), validating its scale and inviting billions of dollars in passive fund inflows, potentially juicing the stock further. 

Yet after such a blistering run higher, is the party over or is there still room to buy in before another liftoff?

APP’s AI Ad Alchemy

AppLovin’s ascent is powered by a business that’s firing on all cylinders, with advertising now the undisputed MVP at over 80% of the revenue mix. Forecasts peg full-year revenue this year at $5.56 billion and $7.16 billion for 2026 — a 23% compound annual growth rate, outstripping the software industry’s 13% average.

The magic is Axon 2.0’s machine learning wizardry, which allows for hyper-targeted ad placements that optimizes ad bids in milliseconds, and boost return on ad spend (ROAS) for clients including e-commerce giants eyeing in-app shoppers. AppLovin also features in-house game studios, and connects publishers with global audiences via real-time bidding exchanges and analytics suites

Strategic pivots such as selling off gaming studios for $400 million freed up capital to invade connected TV (CTV) and web ads, where U.S. CTV spending is projected to hit $34.3 billion this year. Analysts see earnings rising nearly 150% to $13.82 per share by the end of next year, with EBITDA margins holding steady.

Paying a Premium Amid a Competitive Market

At first glance, APP’s multiples scream “bubble”: a forward P/E of 47 dwarfs the industry’s 22.62, and it sports a price-to-book of 188. Trading at 41 times sales, the stock is pricier than peers like Unity Software (NYSE:U), which limps along at a fraction of the growth. Yet, digging deeper, that P/E reflects its leadership position and revenue and profit growth momentum.

In 2024, revenue rocketed 43% to $4.71 billion, with advertising now the undisputed MVP at over 80% of the mix. This year, though, sales are accelerating at a 23% compound annual growth rate, outstripping the software industry’s 13% average. Net margins exploded higher as well, rising from 39% in the year-ago period to 58% today.

It suggests game developers and advertisers are finding value in AppLovin’s service as they can reach, monetize, and grow their global audiences and do so cost-effectively.

However, AppLovin faces significant competition from giants like Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META), which dominate mobile ads. Smaller rivals like ironSource and Unity’s Grow Solutions compete aggressively. It also faces rising user acquisition costs and app saturation could threaten margins. Privacy changes, such as Apple‘s (NASDAQ:AAPL) recent update, hinder ad targeting, while past ad fraud probes raise legal risks. Macroeconomic pressures, including potential ad budget cuts, and greater reliance on advertising revenue add vulnerability. 

Yet, Axon’s proprietary data and 81% adjusted EBITDA margins provide AppLovin with a competitive edge. It’s a frothy valuation, for sure, but there may be more breakouts ahead.

Key Takeaway

AppLovin’s growth and inclusion in the S&P 500 make it a compelling stock, but its high valuation and competitive risks indicate care is warranted at these prices. For risk-tolerant, more aggressive investors. Buying APP stock on dips could capture future runs higher, but more conservative ones should wait for a sharp correction before staking a claim. 

The stock has incredible potential, but because it also carries significant risks after its torrid run-up, taking a wait-and-see approach is probably better for most.