AI Adoption to Favor High Fixed-Cost Firms: A New Era of Margin Expansion

Brad Gerstner of Altimeter Capital, a former Bloomberg finance expert, predicts a "golden age of margin expansion" in the tech industry due to AI adoption. He believes high fixed-cost firms will gain the most from AI, citing Meta's success after cutting costs and refocusing on core business. Gerstner is an investor in OpenAI and a big believer in AI.

Brad Gerstner, a former Bloomberg finance expert and investor at Altimeter Capital, predicts a "golden age of margin expansion" in the tech industry driven by AI adoption. He believes that high-fixed-cost firms stand to gain the most from AI, citing Meta's success after cutting costs and refocusing on core business. Gerstner's optimism is bolstered by his investment in OpenAI, a leading AI company.

One prominent example of this trend is AppLovin (NASDAQ: APP), a mobile advertising technology company. AppLovin reported a 77% year-over-year (YoY) revenue growth in Q2 2025 to $1.26 billion, driven by its AI-powered Axon 2.0 platform and strategic refocusing on ad-tech [1]. This growth was accompanied by a significant margin expansion, with Adjusted EBITDA surging to $1.02 billion (81% margin) and Free Cash Flow (FCF) hitting $768 million [2]. The company's ability to convert top-line growth into cash flow demonstrates its operational excellence.

A key factor in AppLovin's success is its AI-driven monetization strategy. Axon 2.0, launched in Q2 2023, has quadrupled ad spend to $10 billion annually, with 90% of direct-to-consumer (DTC) brands allocating budgets to its AI-driven optimization platform [3]. This technological edge has not only driven revenue growth but also reinvigorated the Western mobile gaming market, which had slowed post-2022.

Analysts are bullish on AppLovin's prospects. Scotiabank recently raised its price target to $575 from $450, citing long-term margin improvements and structural cost advantages [4]. Wedbush also upgraded its target to $620, maintaining an "Outperform" rating. These upgrades reflect the market's confidence in AppLovin's ability to capitalize on the next phase of mobile ad-tech.

Coupang, Inc. (NYSE: CPNG), an e-commerce company, is another example of AI's potential to drive margin expansion. Altimeter Capital Management LP increased its position in Coupang by 24.3%, owning 7,441,445 shares worth approximately $163 million [5]. This increase comes amidst a 16.4% year-over-year revenue growth for the most recent quarter, despite missing earnings per share (EPS) estimates. Analysts have mixed views on Coupang, with Deutsche Bank Aktiengesellschaft cutting its rating to "hold" and Nomura Securities upgrading it to a "strong-buy" rating [5].

In conclusion, the tech industry is entering a "golden age of margin expansion" driven by AI. Companies like AppLovin and Coupang are leading the way, demonstrating how AI can drive revenue growth, margin expansion, and operational efficiency. Investors should closely watch these companies and other tech firms that are leveraging AI to gain a competitive edge.

References:
[1] AppLovin Second Quarter 2025 Earnings: Beats Expectations [https://finance.yahoo.com/news/applovin-second-quarter-2025-earnings-110804742.html]
[2] AppLovin Corp (NASDAQ:APP) Reports Q2 2025 Earnings Miss on Revenue but Beats EPS Estimates [https://www.chartmill.com/news/APP/Chartmill-32522-AppLovin-Corp-NASDAQAPP-Reports-Q2-2025-Earnings-Miss-on-Revenue-but-Beats-EPS-Estimates]
[3] AppLovin reports 77% revenue growth in second quarter [https://ppc.land/applovin-reports-77-revenue-growth-in-second-quarter-2025/]
[4] Scotiabank Raises AppLovin (APP) PT to $575 Following ... [https://finance.yahoo.com/news/scotiabank-raises-applovin-app-pt-051258695.html]
[5] Altimeter Capital Management LP increased its position in Coupang, Inc. [https://www.marketbeat.com/instant-alerts/filing-coupang-inc-cpng-stock-position-increased-by-altimeter-capital-management-lp-2025-09-03/]