Should You Buy AppLovin Stock After S&P Inclusion?

AppLovin (NASDAQ:APP) saw its stock surge by nearly 12% on Monday after being added to the S&P 500 index. Index inclusion often provides a structural boost to stocks, as passive funds and ETFs tracking the benchmark are forced to buy shares. It also acts as a seal of credibility, attracting institutional investors. The stock also remains up close to 60% year-to-date, highlighting growing confidence in the company’s business model, focused on helping mobile app developers publish and market their applications. So is APP stock worth a look following the recent developments?

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App Marketing

AppLovin’s recent financial performance underscores why investor interest in the stock has spiked. In the second quarter, AppLovin’s Revenues rose 77% year-over-year to $1.26 billion. Earnings per share came in at $2.39, up 169% from last year and comfortably ahead of consensus estimates of $1.96. Net income more than doubled to $819.5 million. At its core, AppLovin operates as a mobile advertising and marketing platform. Its biggest competitive advantage lies in Axon 2.0, a proprietary machine learning algorithm that optimizes ad delivery. Axon decides which ad to show, to whom, and when, to maximize engagement.

While this is somewhat similar to what Meta and Alphabet do, Axon is specialized for mobile app advertising, where AppLovin has built a massive dataset over time. The company has sharpened its focus by divesting its gaming app division, allowing it to double down on ad-tech. While gaming remains a big source of ad demand, AppLovin is aggressively expanding into e-commerce, connected TV, as well as non-gaming apps, opening up larger addressable markets.

The digital advertising market is undergoing rapid transformation, with AI-driven platforms improving ad targeting and efficiency. AppLovin is well-positioned to benefit from this shift. Its Axon 2.0 platform provides a fully integrated, data-driven ecosystem, helping advertisers achieve higher returns. Meanwhile, there are several secular growth trends helping the stock as well, including rising mobile app usage and the expansion of connected TV advertising. The company’s push into e-commerce ads, global markets, and self-serve ad platforms further diversifies revenue streams. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

Performance & Risks

Despite its strengths, AppLovin stock has faced significant turbulence. In early 2025, the stock plunged nearly 57% from February to April following a short-seller report that accused the company of overstating its e-commerce performance and violating terms of service. While the allegations have not been proven, with the stock rebounding 150% from the lows, the episode underscores the risks tied to rapid-growth ad-tech companies.

Another key risk is valuation. The stock currently trades at 76x earnings and 65x free cash flow, which is far above market averages. See APP Valuation Ratios This premium pricing leaves little room for execution risks and makes the stock particularly vulnerable during market downturns. Notably, AppLovin shares fell over 90% during the 2022 inflation shock before fully recovering in 2024. Moreover, AppLovin also lacks the depth of first-party e-commerce data that players such as Meta and Alphabet possess and this could prove a challenge in the long-run. Read APP Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

That said, the company’s strong growth, margins and balance sheet do justify its high multiple to an extent.  Over the past year, total revenues climbed 48% to $5.3 billion, while operating income reached $3 billion, translating into an operating margin of 55.6%. Net margin stood at 45.7%, well above the S&P 500 average of 12.6%. These industry-leading profitability levels are complemented by robust free cash flow, with operating cash flow at $2.9 billion in the last 12 months. On the balance sheet front, too, AppLovin appears solid. Debt stood at $3.5 billion at the end of the most recent quarter, compared to a $185 billion market capitalization. Its cash-to-assets ratio was a healthy 20%, signaling financial flexibility.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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