Why Applovin Fell Double-Digits This Week

Shares of mobile game advertising engine Applovin (NASDAQ: APP) plunged this week, falling 14.9% this week through Friday as of 3:15 p.m. EDT, according to data from S&P Global Market Intelligence.

Applovin's stock fell on generalized fear over two new innovations in the mobile game world. Late last week, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) unveiled Project Genie, an AI-powered tool that allows users to create virtual worlds. Second, a new AI-based digital advertising start-up, CloudX, became generally available, posing a potential competitive threat to Applovin's mobile game advertising engine.

Is the AI genie out of the bottle?

The weakness in gaming-related stocks began last Friday, the day after Google rolled out Project Genie to Google AI Ultra subscribers. Virtually all video gaming-related stocks fell in unison after the unveiling, and Applovin got caught up in the sell-off.

The actual effect on video game developers is uncertain. Still, of course, Applovin doesn't make mobile games anymore, having sold its video game development business in June 2025 to focus on its digital advertising engine.

Still, there could be some effect, given that Alphabet is also a digital advertising giant. If developers create playable gaming worlds entirely with Project Genie and roll them out on a Google gaming platform, Alphabet may insist any Genie-produced games use Alphabet's digital ad engine.

While the Project Genie fear spilled over into this week, another potential competitive threat emerged on Wednesday: start-up CloudX. This digital programmatic ad company uses generative AI in place of engineers and operations teams to streamline ad auctions of the kind Applovin holds. CloudX founder Jim Payne was also interviewed by industry publication AdExchanger that same day, in which he outlined how CloudX can innovate digital ad auctions at scale, increasing trust and speed.

Image source: Getty Images.

Analysts defend Applovin in the wake

In response to the sell-off, some Wall Street analysts weighed in on the new potential threats. Gaming analysts at Wedbush were skeptical that CloudX would be as threatening to Applovin, citing past attempts by Google and others to participate in SDK-less auctions, which were hampered by latency issues.

Moreover, the analysts seemed to believe that even if CloudX succeeds, it could boost trust in mobile gaming as a viable advertising channel to more "mainstream" advertisers, which many name brands have been reluctant to touch. That could "expand the pie" for all players.

Furthermore, it appears that Applovin could also begin employing more agentic AI in its auctions. The company is growing revenue and profits rapidly, and one would think this management team wouldn't be caught flat-footed.

There has been high volatility in the software space generally this past week, as investors grapple with the disruptive impact of AI agents. It's still unclear whether AI will be a benefit or a threat to incumbent software companies, so investors in these stocks should monitor developments closely for emerging risks, as well as opportunities.

Billy Duberstein and/or his clients have positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.