One of the emerging trends in 2026 that has moved markets is the concerns over AI stocks that focus on software-as-a-service (SaaS).
Investors, particularly earlier in the year, began selling off these stocks for fear that advanced AI chatbots, notably Anthropic’s Claude Cowork model, which rolled out in February, would replace and render useless the AI-driven software products and services that companies have developed in various niches. Terms like SaaSpocalypse and SaaSmageddon were tossed about as these software stocks saw share prices sink rapidly.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
While some companies and products will likely be affected, the knee-jerk reaction cuts across pretty much all SaaS providers, even those that are not. They could even benefit from chatbots and AI models supporting their businesses.
One of these SaaS stocks that should benefit in this new reality is AppLovin(NASDAQ: APP). And with the sell-off, this under-the-radar AI stock is a screaming buy right now.
Image source: Getty Images.
Lovin’ the apps
AppLovin has a platform that helps companies monetize their apps and provide mobile advertising. It allows advertisers to find the right digital audience to download their apps and buy their products. It also helps app developers with the software platform to analyze, measure the success of, monetize, and grow their apps.
AppLovin uses AI to propel its Axon engine, which finds the right advertising opportunities across the universe of apps, using predictive machine learning based on the company’s goals. It also uses AI to help customers create their ads.
So, when the SaaSpocalyopse hit, AppLovin sank with the rest of the software stocks, plummeting some 45% year to date on Feb. 12 shortly after the launch of the new Claude AI tool.
But some analysts and experts think the reaction is overblown, particularly regarding AppLovin. In their first-quarter (Q1) investor letter, the portfolio managers of the ClearBridge MidCap Strategy said, “AppLovin’s position as an early adopter makes it a long-term beneficiary of AI, as greater gaming and application development should increase the need for discovery by advertisers.”
The chatbots like Claude and OpenAI’s ChatGPT are not competing with what AppLovin does. In fact, they could provide partnership opportunities for companies like AppLovin as they look to use their platform to monetize and put ads on their own sites.
“The company is experiencing a positive lifecycle change, driven by its AI-powered software engine,” the managers of the Alger Capital Appreciation Fund said in their Q1 investor letter.
AppLovin stock is in the buy zone
Investors may have recognized the overreaction because funds have been flowing back into AppLovin stock since that February low. Since Feb. 12, AppLovin stock has jumped some 31% to around $480 per share. Not only was the sell-off overblown, but AI chatbots could actually benefit AppLovin.
That said, AppLovin’s stock is still down 29% year to date. That has significantly reduced the valuation. The valuation had been elevated after churning out an average annualized return of 206% over the past three years and 52% over the past five years.
Currently, AppLovin stock trades at 47 times earnings and a more reasonable 30 times forward earnings. That’s down from a price-to-earnings (P/E) ratio of 79 and a forward P/E of 47 back in December.
AppLovin’s stock has returned to the buy zone following strong earnings. In the most recent quarter, revenue climbed 66% year over year, while revenue increased 84%. For the full year, revenue gained 70% and net income jumped 111%.
AppLovin has received several price target upgrades from analysts in recent weeks, including bumps from Argus, Macquarie, and Wells Fargo(NYSE: WFC). UBS recently lowered its price target to $716 per share, but that’s still higher than the median price target of $660 per share.
If AppLovin stock hits $660 per share, that would be 39% upside from current levels. Overall, some 86% of analysts rate AppLovin as a buy.
AppLovin stock may have fallen off the radar of investors this year, but they may want to give it another look.
Should you buy stock in AppLovin right now?
Before you buy stock in AppLovin, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AppLovin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $476,034!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,274,109!*
Now, it’s worth noting Stock Advisor’s total average return is 974% — a market-crushing outperformance compared to 206% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Wells Fargo is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
