Is AppLovin Corp. (APP) well-positioned to grow in the mobile advertising market?

We recently made a list 10 Hidden AI Stocks Worth Buying Now. In this article, we take a look at how AppLovin Corp. (NASDAQ:APP) stacks up against other stocks in the hidden AI industry.

AI Partnerships

AI research and development began in academia and dominated the sector until the early 2000s. This pattern later changed, with industry taking over AI due to greater investment, research, and lower costs. AI investments by companies are also almost always complemented by commercial applications, making it a more profitable business than academia.

While these commercial relationships flourish, many companies are focusing on a collaborative approach to partnerships, revolutionizing the AI ​​industry. By partnering with tech giants, such companies are accelerating AI adoption, driving vertical growth with specialized models, and increasing demand for powerful computing resources. This strategic approach is shaping the future of AI.

This was recently discussed in another article, Top 7 AI Penny Stocks Under $5Here’s an excerpt from it:

“OpenAI’s approach to fostering collaborative partnerships rather than head-to-head competition with tech giants makes it a unique model. Fred Havemeyer (Chief Analyst, Software Equity Research) at Macquarie praised GPT 4 for its “emotional intelligence.” Growing demand for AI chips, exemplified by OpenAI’s use of over 1.7 trillion parameters in GPT 4, will help NVIDIA and other AI chip manufacturers continue to grow.

On August 20, Bloomberg reported that OpenAI is rolling out a feature that will allow companies to use company data to customize GPT 4 so that it can train it on additional information for niche tasks. This is an example of allowing companies to fine-tune an AI model to act as a customer service chatbot in their subject areas. According to DeepL CEO Jarek Kutylowski, specialized AI models are essential for companies to expand vertically.

Since its founding in 2015, the research firm has championed open research and collaboration in the AI ​​community. By sharing its findings and models, OpenAI encourages other researchers and organizations to build on its work. This has accelerated progress in AI and fostered a more inclusive environment.

OpenAI has partnered with Microsoft so that the tech giant’s $1 billion investment in 2019 can facilitate deep integration of OpenAI models into its products. Azure offers these models as compliance-ready solutions, essential for industries that require high levels of data security.

This was followed by Brazil’s partnership with the tech giant to use OpenAI to reduce court costs. By automating tasks, the Brazilian judiciary is speeding up case processing and increasing efficiency, saving costs in the public sector.

In a recent discussion on CNBC, Barton Crockett of Rosenblatt Securities and Amit Daryanani of Evercore ISI agreed that AI is key to Apple’s future success. Crockett emphasized that AI offers a unique opportunity to revitalize the company’s device ecosystem and that consumers are increasingly valuing AI capabilities in their tech devices, something the company seems to be lagging behind in. He suggested that partnerships with AI companies like OpenAI could help it bridge that gap and improve its offerings.

OpenAI is reportedly seeking significant new funding, potentially valuing the company at more than $100 billion, according to reports from Bloomberg and The Wall Street Journal. The investment round, led by Thrive Capital, underscores the intensifying competition among tech giants for dominance in the AI ​​industry.

In August 2024, WebProNews reported that OpenAI’s user base had doubled to over 200 million in a year, and its annual revenue had surpassed $2 billion. More than 90% of Fortune 500 companies now use OpenAI products. However, maintaining its lead requires addressing issues of practicality, security, and user friendliness. OpenAI’s plans, including its new SearchGPT search engine, aim to address these challenges and strengthen its position. CEO Sam Altman believes SearchGPT has the potential to significantly improve search capabilities.

These cases make us wonder whether it’s collaboration or competition that can help AI grow the fastest. As Dylan Jones, Managing Partner at Boldsquare, notes, strategic partnerships can significantly impact a company’s valuation. The moves by the tech giants indicate a deliberate effort to maintain their leadership in AI, even if it means blurring the lines between collaboration and competition.

In a discussion on CNBC’s “Squawk Box,” Mike Intrator, co-founder and CEO of CoreWeave, said demand for AI infrastructure is relentless and has been in a state of severe imbalance for the past 2.5 years.

He believes demand for Nvidia chips is skyrocketing, while the rest of the industry is scrambling to keep up, including CoreWeave. According to Intrator, CoreWeave and its customers are anticipating a significant increase in demand for AI infrastructure. Given the industry’s limited capabilities, customers are struggling to train and run AI models. CoreWeave, with its ability to deliver AI infrastructure at scale, is well-positioned to meet this growing demand.

However, startups often suffer the cost of these partnerships, unable to compete with the tech giants. Despite this, many companies are emerging and growing at a good pace. In this context, here is a list of 10 hidden AI stocks worth buying now.

Methodology

To compile our list, we combed through media reports and watched interviews with Wall Street analysts to identify AI stocks that are being overlooked and hidden. We shortlisted 20 potential stocks and selected the 10 most popular among elite hedge funds that are likely to be the primary beneficiaries of secular AI trends. The stocks are ranked in ascending order of the number of hedge funds that have a stake in them as of the second quarter of 2024.

Why are we interested in the stocks that hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (SMore details can be found here).

AppLovin Corp. (NASDAQ:App)

Number of hedge fund owners: 54

AppLovin Corp. (NASDAQ:APP) is a mobile app platform that leverages AI to optimize app discovery, user acquisition, and monetization. It uses ML algorithms to analyze user data, identify target audiences, and deliver relevant ads to increase app downloads and engagement. Its products are used by both gaming advertisers and the connected TV market, which relies on the Internet.

The company’s AXON technology improvement helped drive growth in its software platform during the quarter, generating $711 million in revenue. App revenue was $369 million, up 7% year over year. Total revenue for the second quarter of 2024 was $1.08 billion, up 43.98% year over year. Management says the plan now is to invest in organic growth, with a focus on engineering and business development to support AXON’s technology and e-commerce expansion.

AppLovin Corp. (NASDAQ:APP) CEO Adam Foroughi highlighted the potential for growth in app advertising. He highlighted the role of the MAX platform in driving this growth by moving from inefficient waterfall methods to programmatic bidding. He expressed optimism for continued steady growth rates (5% to 7% quarter-over-quarter) in the software industry, driven by ongoing product improvements and new categories.

It is well-positioned for growth in the mobile advertising market. It can grow quite quickly thanks to its AI-based platform and strong partnerships. As of June 30, the company is owned by 54 hedge funds. The largest of them is valued at $1,105,913,583 by GQG Partners.

ClearBridge Select Strategy stated regarding AppLovin Corporation (NASDAQ:APP) in the first quarter of 2024: investor letter:

“We also added AppLovin Corporation (NASDAQ:APP), a disruptor in the IT sector by helping developers market and monetize their mobile apps. The company’s software segment has been growing rapidly in 2023 with its proprietary targeting engine and is poised to benefit from improved AI performance. We believe the company’s targeting engine is still in its early stages as precision continues to improve, adoption and datasets grow, and AppLovin is beginning to license the engine to e-commerce advertisers, which could open up a whole new multi-billion dollar market.”

Total BE takes 7th place on our list of hidden AI stocks to buy. While we recognize the potential of BE as an investment, our conviction is based on the belief that AI stocks offer great promise for achieving high returns in a shorter period of time. If you are looking for AI stocks that are more promising than BE but are trading at less than 5 times earnings, check out our report on cheapest AI action.

READ MORE: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy, According to Morgan Stanley AND Jim Cramer says NVIDIA has ‘become a wasteland’.

Disclosure: None. This article was originally published on Insider Monkey.