Why AI Stock AppLovin Slumped Today

Very frequently, when a company's stock is targeted by a vociferous short seller, it can take a hit to its share price. That was the dynamic behind AppLovin's (NASDAQ: APP) 0.7% dip on Thursday after a notable "shortie" published a report that was highly critical of the company. That decline was a bit steeper than the 0.4% slide of the S&P 500 index that day.

Alleged Chinese connections

The short seller is a firm called Culper Research, and Thursday morning it laid out in a 30-page document its reasons for shorting AppLovin.

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These center around AppLovin's stated aim of owning the non-China operations of that country's runaway social media success, TikTok.

Culper finds that problematic, not least due to what it considers to be significant investment in AppLovin's equity by a Chinese national, Hao Tang. It also expressed dismay about what it considers to be the company's undisclosed partnerships with two companies in the Asian country.

Ultimately, wrote Culper, "AppLovin's covert Chinese ownership and operations raise not only concerns for shareholders but for national security and data security -- the very concerns AppLovin purports to address by acquiring TikTok's ex-China operations."

The short seller added that Hao "is a bad actor with extensive direct and indirect ties to Chinese espionage, [Chinese Communist Party] state-sponsored propaganda, human trafficking, and money laundering operations."

Muted reaction from the market

The mild investor sell-off in the wake of Culper's report indicates that more than a few AppLovin shareholders aren't fully buying the firm's arguments. That said, the short seller does raise what might be valid concerns; AppLovin hasn't yet officially responded to the allegations, and it'll be worth watching to see if and when those apparent China connections come to light.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.