The S&P 500 (^GSPC 0.05%) is widely recognized as the best overall gauge of the U.S. stock market and is made up of the 500 leading publicly traded companies in the country. Given the breadth of businesses that compose the index, it is generally considered the most reliable benchmark of overall stock market performance. To be considered for admittance into the S&P 500, a company must meet the following broad-based criteria:
- It must be a U.S.-based company.
- It must have a market cap of at least $22.7 billion.
- It must be highly liquid.
- At least 50% of its outstanding shares must be available for trading.
- It must be profitable according to generally accepted accounting principles (GAAP) in the most recent quarter.
- It must be profitable during the preceding four quarters in aggregate.
AppLovin (APP 1.32%) is the latest addition to the S&P 500, scheduled to join the benchmark on Sept. 22. That makes it one of only 10 companies to make the cut thus far in 2025. The stock has gained 541% over the past year, but there's more. Since its IPO in early 2021, AppLovin has outperformed the broader market by a wide margin, generating gains of 652%, compared with just 55% for the S&P 500 (as of market close on Friday). The stock price gains have been driven higher by robust fundamentals, as its revenue has soared 510% and net income has jumped 3,490% -- all in less than five years.
Despite the stock's impressive gains and AppLovin's increasing track record, many believe the company has a long runway for growth ahead. Let's take a look at the opportunity and why Wall Street firmly believes the stock is still a buy, despite its premium valuation.
Image source: Getty Images.
A compelling niche opportunity
When it comes to advertising in software and apps, historically, the results were hit or miss. That's where AppLovin comes in. The adtech company's software-as-a-service (SaaS) platform provides a suite of tools to help app developers with the marketing and monetization of their apps. The company is in the process of expanding beyond its humble roots and is now developing a new generation of adtech solutions specifically to serve e-commerce platforms.
AppLovin is leaning into the artificial intelligence (AI) revolution with Axon 2.0, the next generation of the company's AI-powered adtech platform. The system uses cutting-edge prediction machine learning to identify users most likely to download app-install ads, which helps mobile app developers boost their campaign performance, fueling greater ad revenue.
The numbers paint a picture
Don't take my word for it. AppLovin's recent results paint a compelling picture. In the second quarter, revenue of $1.26 billion grew 77% year over year, resulting in earnings per share (EPS) of $2.39, soaring 169%. The results were driven higher by net revenue per installation that increased 70% and the number of installations, which climbed 8%.
The results blasted past Wall Street's expectations, as analysts' consensus estimates were calling for revenue of $1.22 billion and EPS of $1.96. AppLovin's forecast also gave shareholders reason to celebrate, as management is guiding for third-quarter revenue of $1.33 billion, ahead of Wall Street's expectations of $1.31 billion.
Perhaps as importantly, the company's operating and free cash flow both continue to march higher, rising to $772 and $768 million, respectively, representing increases of 70% and 72%.
AppLovin has carved out a wildly successful niche by providing app developers with a proven way to monetize their creations.
Wall Street is bullish
Despite the stock's impressive gains, Wall Street remains remarkably bullish. Of the 25 analysts who offered an opinion so far in September, 19 -- or 76% -- rate it a buy or strong buy, four label it a hold, and only two are bearish.
Analyst Rob Sanderson at Loop Capital is among the most bullish, recently reiterating his buy rating and $650 price target on the stock, representing potential upside of 33% for investors, compared to the stock's closing price on Friday. The analyst cited AppLovin's impressive financial results as evidence of its leadership in the mobile app marketing and monetization space.
AppLovin is currently selling for just 36 times next year's expected earnings, and 23 times next year's sales. While that's undeniably a premium, I'd argue it's a reasonable price to pay given its strong history of growth and leadership in its field.
Given its increasing track record of success, technological leadership, and the support of Wall Street's finest, I would submit that AppLovin stock is a buy as it's granted entry into the S&P 500.
