Was Jim Cramer Right About AppLovin Corporation (APP)? A Tale of AI Growth and Valuation Crossroads

In the volatile world of tech investing, few calls are as dramatic as Jim Cramer's enthusiastic endorsement of AppLovin Corporation (NASDAQ:APP) in 2023—a move that fueled a 381.87% stock surge—followed by his recent skepticism about its profit sustainability. Now, as the company navigates AI-driven growth and margin pressures, investors face a critical question: Does AppLovin's future justify its premium valuation, or is it a prime candidate for a correction?

The Rise: Cramer's Blessing and the AI Inflection Point

Cramer's initial support for AppLovin was rooted in its third-quarter 2023 results, which saw a 66% jump in software platform revenue to $835 million, driven by its AI-powered Axon 2 advertising platform. This leap, coupled with a net income surge of 298.1% year-over-year, convinced Cramer to call it a “breakout” play despite his disdain for enterprise software. The stock's subsequent 381.87% rally through early 2024 validated his call.

Yet, by April 2025, Cramer's tone shifted. In a Mad Money segment, he highlighted two critical concerns:
1. Valuation Overhang: Trading at 56x forward 2025 earnings, AppLovin's premium multiple clashes with “extremely cheap AI stocks” (e.g., those at <5x earnings) benefiting from Trump-era tariffs and U.S. onshoring trends.
2. Governance and Margin Risks: He questioned the overlap of Craig Billings—a Wynn Resorts CEO and AppLovin's audit committee head—influencing financial transparency. Competitors, he argued, could erode AppLovin's 39% gross margins through aggressive pricing.

The Counterargument: Hedge Funds and AI Optimism

While Cramer's skepticism is valid, institutional investors are doubling down. 95 hedge funds hold AppLovin, and 14 of 19 analysts rate it a “strong buy”, citing its 20.5% revenue growth forecast and 40% earnings growth in 2025.

ClearBridge Investments, a major shareholder, recently emphasized AppLovin's AI-first strategy as a moat against margin pressures. Axon 2's self-learning capabilities, they argue, enable hyper-targeted ads with 50% higher ROI for clients—a $1.2 billion revenue driver in 2024. The platform's scalability, now serving 2.5 million apps globally, suggests long-term dominance in mobile monetization.

The Crossroads: Hold or Fold?

Investors must weigh two narratives:
1. Cramer's Valuation Thesis: At 56x earnings, AppLovin is a “growth stock in a value-driven market.” If AI adoption slows or margins compress, the stock could underperform cheaper peers.
2. Hedge Fund Vision: Axon 2's AI edge positions AppLovin to capitalize on the $600 billion global ad tech market, with emerging opportunities in China's reopening and metaverse ad spaces.

Data-Driven Insights

The Verdict: Strategic Hold with a Twist

AppLovin remains a strategic hold for investors focused on AI's secular growth. Its AI-driven revenue engine and 9th-place ranking on Cramer's “most impactful stocks” list justify patience. However, the 56x valuation demands caution.

For aggressive investors, consider pairing a small AppLovin stake with a high-potential AI infrastructure stock trading at <10x earnings (e.g., a cloud-based data platform or semiconductor firm benefiting from onshoring). These names, while less flashy, offer asymmetric upside in a market prioritizing affordability.

Final Take

Jim Cramer was right—twice. His endorsement catalyzed AppLovin's rise, and his valuation critique hits the mark. Yet, the company's AI moat and institutional backing argue for a long-term hold. For now, AppLovin is a must-watch stock at the intersection of growth and governance risks—a reminder that even the best tech calls require patience and portfolio balance.

Investors: Proceed with caution, but don't ignore the AI tailwinds.