Think It's Too Late to Buy AppLovin Stock? Here's the Biggest Reason Why There's Still Time.

AppLovin (NASDAQ: APP) hasn't gotten the attention of Nvidia and some other artificial intelligence (AI) stocks recently, but you might be surprised to learn that the stock has outperformed Nvidia by a wide margin since the start of 2023

Below is the performance of the two stocks. As you can see, AppLovin's stock has skyrocketed in the last six months as investors have responded to the dramatic growth in its advertising business.

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APP data by YCharts.

Historically, AppLovin was an owner and developer of mobile games. That changed with the launch of the Axon platform, its AI-powered ad tech platform that has proven to be a big winner, starting with mobile games. It's now spread to e-commerce and a wide range of businesses.

Advertising revenue jumped 73% to $1 billion in the fourth quarter, continuing a trend from the rest of the year as ad revenue rose 75% to $3.22 billion. Overall revenue was slower as its apps segment has been essentially flat, but the company has entered an agreement to sell the app business, meaning it will be a pure-play ad tech business.

Image source: Getty Images.

Why AppLovin can keep moving higher

AppLovin stock isn't cheap according to traditional metrics, but its valuation still seems reasonable for its growth. It currently trades at a price-to-sales ratio of 38. Its business is also highly profitable with a net profit margin of 33%, meaning its price-to-earnings ratio based on generally accepted accounting principles (GAAP) is about 110. That's very expensive, but a company that's nearly doubling sales in its biggest segment each quarter can grow into that in just a few years.

Looking ahead, it's still not too late to buy AppLovin stock, as 2025 is shaping up to be a breakout year for the company. It plans to expand its advertising reach beyond gaming and e-commerce, and it's testing Connected TV (CTV), a huge market where it sees "significant potential" for growth.

AppLovin is still only serving a sliver of the ad market right now, but there's huge potential for the company in 2025 and beyond.

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Jeremy Bowman has positions in Nvidia. The Motley Fool has positions in and recommends AppLovin and Nvidia. The Motley Fool has a disclosure policy.