This AI Stock Could Be the Best Growth Story of the Decade

Wall Street primarily focuses on chipmakers, cloud giants, or model creators when selecting top artificial intelligence (AI) stocks. Yet, another contender is emerging in AppLovin (NASDAQ: APP). Long recognized for its performance-driven mobile advertising technology, the company is gradually becoming a prominent player in the field of AI.

AppLovin is using AI to optimize digital ads by combining advertising technologies, gaming, and data. Here are a few more reasons why this stock is well positioned to be the best growth story of the next decade.

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Axon 2.0

The most significant catalyst is AppLovin's Axon 2.0, an AI-powered optimization engine designed with the help of over 1 billion users to enhance performance and targeting of mobile ads. Axon 2.0 has already demonstrated solid performance in the past couple of years.

At launch two years ago, Axon 2.0 had a 50% to 60% penetration in the mobile game advertising market. Since then, the model has become even stronger and is now almost a requirement for mobile game advertisers seeking to maximize installs and returns.

Axon 2.0 is also focusing on e-commerce advertising. While the performance engine began with no baseline data, early pilots highlight its success in driving shopper conversions across categories such as beauty and retail. The company has successfully onboarded hundreds of advertisers during the pilot phase and has generated a run rate of nearly $1 billion in the first quarter.

This penetration, however, is very low, especially when there are millions of potential customers on Shopify. AppLovin has already launched a new app in the Shopify App Store, enabling merchants to connect with its platform in one click, helping them avoid lengthy technical setups or custom integrations to benefit from Axon 2.0. So there is still significant scope to grow for Axon 2.0.

AppLovin has also rolled out Axon Ads Manager, a self-serve interface that enables advertisers to directly manage daily activities, such as onboarding and credit card billing. The tool is expected to allow advertisers to leverage automation capabilities to automate entire workflows.

Axon Ads Manager also supports automatically generated ads and integration with attribution partners (third-party providers that help track and measure ad effectiveness), providing clients with improved visibility into ad performance. The company plans to expand access after Oct. 1 through a referral-based rollout, and has scheduled a global launch of this tool in the first half of 2026.

Other catalysts

AppLovin's MAX mediation platform is also proving to be a strong competitive moat. Management highlighted that the number of ad impressions supplied on the MAX platform is growing at double-digit growth rates, far ahead of the 3% or 5% growth seen for the mobile gaming market.

Financial performance

Financial performance has been stellar. In the second quarter, the company's revenue soared 77% year over year to $1.26 billion, while net income surged 164% to $820 million. The company also generated $768 million in free cash flow, up 72% over the prior-year period.

AppLovin's growth has been primarily driven by the company's strategy to refocus on its core high-margin advertising business. The divestiture of the Tripledot Studios Apps business has also helped generate additional cash. The company ended the second quarter with $1.2 billion in cash, of which $425 million came from the divestiture.

Valuation

Shares of AppLovin have soared over 110% so far in 2025. The stock trades at 48.3 times forward earnings, which is not a particularly cheap valuation.

Analysts expect AppLovin's earnings per share to jump 101.8% year over year to $9.14 in 2025 and by 50.5% to $13.80 in 2026. At such high growth rates, the company may continue to trade at elevated valuation levels, especially considering it's still in the early stages of scaling beyond mobile gaming into the broader e-commerce market.

Several Wall Street analysts also believe in the company's growth story. Oppenheimer has raised the company's target price from $240 to $740 and reiterated an outperform rating, citing high confidence in its non-gaming advertising business. UBS increased the target price from $540 to $810, and maintains a buy rating, and Piper Sandler has raised the target price from $500 to $740, maintaining an overweight rating.

With strong financial performance, expanding markets, and rising analyst conviction, AppLovin can prove to be a stellar pick for the next decade.

Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.