Should You Follow Tiger Global's $575M Bet on Controversial AI Stock AppLovin?

In a market rife with skepticism toward AI-driven stocks, AppLovin (APP) has emerged as a paradox: a company lauded by one of the world’s most respected contrarian investors, Tiger Global, yet dogged by short-seller allegations of overvaluation and regulatory risks. With its AI platform Axon 2 propelling 40% year-over-year revenue growth in Q1 2025 and a PEG ratio of just 0.56, AppLovin presents a compelling opportunity for investors willing to navigate its controversies. Let’s dissect whether this stock deserves a place in your portfolio—or if the risks outweigh the AI tailwinds.

The Axon 2 Revolution: Growth That’s Too Big to Ignore

AppLovin’s AI-driven ad platform, Axon 2, has become the engine of its meteoric rise. In Q1 2025, advertising revenue surged 71% to $1.16 billion, while gross margins hit a staggering 81.7%, fueled by Axon 2’s ability to optimize ad targeting in real time. The platform’s predictive algorithms leverage first-party data from its owned apps (now being divested) and its 80%-market-share MAX mediation platform, creating a data flywheel that competitors like Unity Software (U) can’t match.

This isn’t just hype: Axon 2’s performance has translated to $1.48 billion in total Q1 revenue, a 40% jump from last year, and free cash flow of $826 million, up 113% year-over-year. CEO Adam Foroughi’s claim that Axon 2 is “the best the world has ever seen” might sound audacious, but the numbers back it.

Tiger Global’s Contrarian Validation: Why $575M Matters

When Chase Coleman’s Tiger Global—a firm with a $20 billion portfolio and a track record of betting early on tech disruptors like Airbnb and Spotify—invests $575 million in a controversial stock, it’s worth sitting up. Tiger’s due diligence likely saw through the noise:

• AI’s Scalability: Axon 2’s 740 basis-point margin expansion since 2022 suggests it’s not a flash in the pan.
• Market Dominance: MAX’s 80% mediation share creates a near-impenetrable moat, locking in developers and advertisers.
• Divestiture Clarity: Selling its underperforming gaming division for $400 million removes distractions, sharpening focus on its AI-software core.

Tiger’s bet isn’t about short-term gains—it’s a long-term play on AppLovin’s ability to redefine performance marketing.

Valuation: A PEG Ratio at 0.56 Says “Buy Now”

AppLovin’s PEG ratio of 0.56 (below 1) signals undervaluation relative to its growth trajectory. With adjusted EBITDA margins hitting 68% and free cash flow surging, the stock’s forward P/E of 45x is justified by its AI-powered expansion. Compare this to Unity’s declining ad revenue and consistent losses, and AppLovin’s moat becomes clear:

• Revenue Growth: Axon 2’s e-commerce expansion could unlock $1 billion+ in untapped markets by 2026.
• Competitive Edge: Unity’s Vector AI lacks Axon 2’s proven track record, while its MAX-less mediation ecosystem leaves it vulnerable.

The Risks—and Why They’re Overblown

Short sellers argue AppLovin’s debt-to-equity ratio of 643% and regulatory risks (e.g., FTC scrutiny of its ad tech claims) justify a short. But these risks are manageable:

1. Debt: The $1.2 billion share buyback in Q1 shows financial discipline, and Axon 2’s cash flow can service debt.
2. Regulation: While risks exist, Axon 2’s focus on first-party data (not third-party tracking) sidesteps the most contentious issues.
3. Short Interest: Shorts may be overestimating execution risks; AppLovin’s operational turnaround since its 2022 merger with ironSource is textbook.

The real threat? Overconfidence. Investors should treat AppLovin as a strategic, small-position bet, given its volatility.

Final Verdict: A Strategic Contrarian Play

AppLovin isn’t a “set it and forget it” investment—it demands vigilance. But with Axon 2’s AI dominance, Tiger’s seal of approval, and a PEG ratio screaming undervaluation, the upside outweighs the risks for aggressive investors.

Action Items:
- Buy: Allocate 2-5% of your portfolio to APP, with a trailing stop at 20% below entry.
- Monitor: Track Axon 2’s e-commerce rollout and MAX’s market share.
- Avoid: If regulatory hurdles or margin declines materialize, exit swiftly.

In a market craving AI winners, AppLovin is the real deal—warts and all.

Disclosure: The author holds no position in AppLovin. This analysis is for informational purposes only.