AppLovin (NASDAQ:APP) has an odd problem. Its business keeps posting the kind of numbers most tech companies would frame and hang on the wall. Yet investors are now paying far less for each dollar of its expected earnings than they have, on average, over the past five years.
In the second quarter of 2026, revenue jumped 53% to $1.924 billion. Profit grew even faster. And the stock has still been treated like something to escape rather than something to own, landing it among the 10 Best 52-Week Low Technology Stocks to Buy According to Analysts. AppLovin sells advertising technology. Its AI-driven platform helps app developers and other businesses find new customers by placing ads inside mobile apps, and it earns money as advertisers spend to reach those users. If you’ve ever seen an ad for one mobile game while playing another, there’s a decent chance a system like this decided you’d see it. So is the market spotting a crack early, or overreacting to noise? The answer depends less on last quarter’s results than on whether the engine behind them can keep its edge.
Margins Tell the Moat Story
The clearest proof of AppLovin’s advantage is in its margins. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization, excluding certain items) reached $1,614 million in the second quarter, up 58%. That’s a margin of 84%, up from 81% a year earlier.
That pattern matters. Revenue is climbing fast while costs lag, which is what scale and pricing power look like in practice. Advertisers keep spending because the platform delivers results, and AppLovin keeps more of every dollar as it grows.
GAAP net income rose 55% to $1,267 million, a 66% net margin, and diluted EPS came in at $3.76. Few ad platforms turn revenue into profit this efficiently, which is why comparisons with ad-tech rival The Trade Desk keep coming up.
The Outlook Still Points Up
Management’s guidance suggests the momentum didn’t stop when the quarter closed. For the third quarter of 2026, AppLovin forecast revenue of $2,055 million to $2,085 million, with adjusted EBITDA of $1,710 million to $1,740 million and an 83% margin.
The cash is real, too. Free cash flow hit $863.3 million in the second quarter. AppLovin spent $551.3 million repurchasing and withholding 1.1 million shares. That suggests management sees value at these levels, placing the company among the 10 Cheap Stocks That Will Go to the Moon According to Reddit as it aggressively returns capital to shareholders.
On the numbers, then, the moat looks intact. The bigger question is whether those numbers mark a peak.
What If Rivals Close the Gap?
The worry hanging over the stock is competition. AppLovin’s lead in mobile app advertising rests on its data and targeting edge, and investors are asking whether rivals like Unity can chip away at it. A second concern follows: a revenue base this large makes 50%-plus growth harder to sustain each quarter.
Those concerns deserve respect. Platforms built on algorithmic advantage can lose ground faster than businesses protected by long contracts or physical assets.
Still, the guidance shows no sign of that erosion yet. Margin expansion also suggests advertisers aren’t demanding discounts to stick around. For now, competition is a risk to watch rather than a problem the results confirm.
Growth Priced Like Caution
AppLovin trades at a forward P/E of 16.62, as of October 9, meaning investors pay about $16.62 for every $1 of earnings expected over the next year. That’s a sharp step down from its 5-year average of 29.32.
It isn’t cheap against everything. Its sector trades at a forward P/E of 12.29, so AppLovin still carries a premium. But that sector average includes plenty of slower businesses, and AppLovin’s earnings are expected to grow 27.53% in 2027.
Taken together, the market is pricing AppLovin less like a fast-growing platform and more like a mature company with a bit of growth left. If the expected earnings growth shows up, today’s multiple looks modest against the company’s own history. If competition dents that growth, the discount may prove justified, a tension running through many AI-powered advertising stocks, such as Trade Desk, right now.
Hedge fund interest slipped slightly, with 88 funds holding the stock in the most recent quarter, down from 91 in the prior one. Short interest sits at 3.76% of the float, relatively limited bearish positioning given how much enthusiasm has cooled.
Cheap for a Reason, or Just Cheap?
The evidence points to a business still executing while its valuation absorbs fears about competition. At 16.62 times forward earnings, against a 5-year average of 29.32, investors are paying far less for growth that hasn’t meaningfully slowed. That setup suits patient growth investors who can stomach sharp swings. The next real test is the third-quarter report. Revenue within or above guidance, with margins holding near 83%, would strengthen the case that the discount has gone too far. A miss, or signs that advertisers are shifting budgets to rivals, would suggest the market saw the cracks first.
While we acknowledge the risk and potential of APP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than APP and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: Top 10 AI Stocks That Will Skyrocket and 2 Stocks Trump Bought in July Are Now Down 17% to 20%. Time to Buy?
