Why AppLovin Stock Jumped Today

Key Points

• Morgan Stanley lifted its price target for AppLovin to $750 and reiterated an overweight rating.

• The bank highlighted the Oct. 1 soft launch of Axon Ads Manager, a self-serve tool aimed at nongaming advertisers, as a near-term catalyst.

• This follows other recent bullish analyst calls, underscoring optimism about Axon's expansion beyond gaming.

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AppLovin (NASDAQ: APP) shares were climbing on Monday -- up as much as 7.8% as of 11:10 a.m. ET. Investors reacted to a fresh price target increase from Morgan Stanley and growing anticipation for next week's Axon Ads Manager debut for nongaming advertisers. The move stands out because the firm framed the Oct. 1 launch as a key catalyst that could unlock ad budgets outside gaming, a long-running bull case for AppLovin's platform.

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Analyst catalyst tied to a product milestone

In this morning's note, Morgan Stanley raised its target to $750 and kept an overweight rating, pointing to the Axon Ads Manager rollout as the most important proof point yet for scaling AppLovin's nongaming business. That follows recent upbeat analyst upgrades from Piper Sandler ($740 target) and UBS ($810 target). Together, these analyst calls reinforced confidence that AppLovin can broaden demand beyond its gaming core.

Valuation and the long view

Enthusiasm is high -- and so is the bar. By several simple gauges, shares are trading at a lofty valuation, reflecting expectations that Axon will scale quickly in nongaming.

For instance, the company has a staggering forward price-to-earnings ratio of about 50 and a price-to-sales ratio of approximately 42, respectively. If the self-serve launch drives sustained spend and wins recognizable nongaming logos, that premium can be defended.

That said, any stumble in adoption or a broader ad-spend slowdown could pressure a stock priced for flawless execution. For long-term investors, the business momentum is certainly attractive. But the stock's recent rise has arguably priced in a lot of the upside (if not all of it).

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Daniel Sparks and his clients has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.