TipRanks Smart Growth Portfolio #63: The Adfather
Dear Investors,
In this edition of the Smart Growth Portfolio and Newsletter, we spotlight a company teaching AI how to sell attention. But first, some news and updates.
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Portfolio Changes
❖ We are removing Telos Corporation (TLS) from the Portfolio.
The original thesis centered on a turnaround story evolving into a more durable growth platform, driven by expanding TSA PreCheck enrollment activity, improving execution across government security programs, and longer-term upside from higher-value offerings such as Xacta AI. Operationally, that turnaround is clearly taking shape. Recent results were strong, with revenue up 56% year-over-year, adjusted EBITDA margins expanding sharply, free cash flow remaining consistently positive, and the company returning to GAAP profitability. The balance sheet also remains healthy, with no long-term debt and growing cash generation.
Importantly, management reaffirmed full-year guidance despite the unexpected medical leave of CEO John Wood. Under normal circumstances, the lack of guidance raise after such a strong quarter could have been viewed negatively. In this case, however, maintaining guidance appears understandable and arguably prudent, given the temporary leadership uncertainty and the company’s desire to avoid appearing overly aggressive during a transition period. Operational continuity also appears intact so far.
At the same time, the key issue is no longer execution, but the durability of growth. Much of the current momentum remains tied to TSA PreCheck expansion, Telos ID activity, and existing government programs, while visibility into incremental new business acceleration is still limited. Management highlighted a sizable pipeline of submitted proposals, though award timing remains dependent on government decisions, and therefore difficult to underwrite with confidence.
There are also signs that the market itself remains uncertain about how to value the story. Analyst price targets vary widely, while sentiment toward the stock appears inconsistent and heavily market-driven rather than tied to a clear company-specific narrative. Meanwhile, management’s decision to accelerate share repurchases this early in the turnaround is not something we view as an outright positive in this context. While it may reflect confidence in the valuation, it can also suggest a lack of sufficiently compelling near-term internal growth reinvestment opportunities – not typically the profile we seek in a concentrated growth portfolio.
Ultimately, this is no longer a question of whether Telos is improving – it clearly is. The issue is whether the company currently offers the level of long-duration, high-conviction growth visibility required for one of a limited number of Portfolio slots. At this stage, we believe the answer is no.
The company remains fundamentally improved and strategically well-positioned within government identity and cybersecurity markets, and we will continue monitoring closely for signs that the current operational momentum is evolving into a more durable and diversified long-term growth story that could justify revisiting the position in the future.
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Portfolio News
❖ Micron (MU) continues to see significant analyst support. Bank of America lifted its price target from $500 to $950, citing a larger-than-expected addressable market for AI data centers, now seen reaching $1.7 trillion by 2030 – up from a prior estimate of $1.4 trillion. BofA also noted that memory capacity and bandwidth are increasingly emerging as the key constraints in AI inference workloads. DA Davidson set its target at $1,000, arguing that many investors underestimate the current demand surge and Micron’s technological leadership, particularly in high-bandwidth memory.
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❖ Applied Digital (APLD) completed the spinout of its cloud computing business into a new entity – ChronoScale Corporation, which has already begun trading on Nasdaq under ticker CHRN. Applied retains approximately a 97% stake in the new public entity. CHRN is now operating as an accelerated compute platform purpose-built for demanding AI workloads, including GPU-based infrastructure for AI training, inference, and high-performance computing. The split was announced in December 2025 and was framed as a way to separate predictable returns in data center hosting from the higher-growth, but more volatile cloud compute layer, aiming to capitalize and scale each business more efficiently. Spin-out completion was welcomed by analysts and investors alike, with the stock climbing on the news, as it is expected to unlock significant additional value.
In other news, APLD has secured a $300 million senior secured bridge facility led by Goldman Sachs to fund the construction of a third AI data center at the Polaris Forge 1 campus in North Dakota. The loan is seen as a disciplined step toward bringing capacity online while preserving future financing flexibility.
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This Week’s Top Growth Pick: AppLovin (APP)
AppLovin Corporation builds software that helps mobile app developers and advertisers market, distribute, and monetize products more effectively. Its AI-powered platform uses advertising technology to match advertisers with users who are most likely to engage, download, or spend money inside apps. The company operates primarily in mobile gaming while expanding into broader consumer app and e-commerce categories. It helps businesses improve customer acquisition while increasing monetization efficiency for publishers. As digital advertising shifts toward automated, data-driven targeting, platforms capable of processing massive amounts of user behavior data in real time are becoming increasingly valuable. AppLovin sits in that infrastructure layer – connecting advertisers, publishers, and machine-learning systems to optimize how digital advertising inventory is bought, sold, and monetized across the mobile economy.
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From Games to Gains
AppLovin was founded in 2012 as a mobile app marketing platform, initially focused on helping game developers acquire users and monetize traffic more efficiently. Its early growth came through aggressive expansion and acquisitions in ad mediation, analytics, and app monetization tools, building a vertically integrated ecosystem.
A 2021 IPO marked a turning point, giving APP the scale and capital to accelerate its transition from a gaming-centric ad network into a broader AI-driven advertising platform. Key moves included the 2021 acquisition of Adjust, which added mobile measurement and analytics capabilities, and the acquisition of Twitter’s MoPub business in 2022, which significantly strengthened its MAX mediation platform and massively expanded its publisher reach.
At the same time, the company invested heavily in its AXON machine-learning engine. AXON increasingly automated ad targeting, pricing, and campaign optimization using large-scale behavioral data, allowing advertisers to improve customer acquisition efficiency while publishers generated higher monetization yields. The rollout of the AI-native AXON 2.0 in 2023 proved transformative, powering superior ad targeting, optimization, and campaign performance. This enabled strong expansion beyond gaming into e-commerce and other consumer verticals.
Alongside MAX – AppLovin’s ad monetization engine for app publishers – the company has developed AppDiscovery, its proprietary user acquisition platform for advertisers and app developers, helping them find and acquire new users at scale. Both tools are powered by the AXON platform, and together these technologies give AppLovin greater control over both the demand and supply sides of mobile advertising.
Strategic partnerships and integrations with major app publishers, advertisers, and e-commerce brands further expanded the company’s reach as digital advertising shifted toward AI-driven optimization. These ties include giants like Meta Platforms, which has been a key bidder on the MAX mediation platform for many years, and Shopify, which has been core to APP’s e-commerce expansion. The company also collaborates with Triple Whale in e-commerce analytics and maintains a strategic media partnership with Stagwell.
Over the past year, AppLovin has been simplifying its corporate structure to focus exclusively on software and advertising infrastructure. In 2025, the company completed the divestiture of its mobile gaming studio business. This move reinforced its evolution from a hybrid gaming-and-advertising company into a pure-play, scaled advertising technology platform centered on AI-powered performance marketing.
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The Road to ROAS
AppLovin operates inside one of the fastest-growing layers of digital advertising: AI-driven performance marketing. Its platform helps advertisers acquire users more efficiently while helping app publishers maximize monetization through automated, real-time ad targeting and auction optimization. At the center of that system sits AXON – APP’s proprietary machine-learning engine – alongside MAX, its ad mediation platform, and AppDiscovery, its advertiser acquisition platform. Together, they create a powerful closed-loop ecosystem: more advertisers bring more data, which improves targeting and bidding, which in turn attracts even more advertisers and publishers.
This feedback loop has become APP’s primary competitive advantage. Rather than competing purely on impressions like traditional ad networks, AppLovin positions itself as optimization infrastructure focused on measurable return-on-ad-spend (ROAS). Its software continuously analyzes user behavior, ad engagement, conversion patterns, and auction dynamics to decide which ads to show, to whom, and at what price. The company’s edge stems not just from AI – which can commoditize over time – but from its massive scale of behavioral data, continuous auction-feedback loops, and years of optimization across large mobile ecosystems.
Gaming remains the foundation, driving scale, data density, and deep monetization expertise. However, the next phase of growth is centered on expansion into broader consumer verticals – e-commerce, fintech, insurance, food delivery, and potentially Connected TV advertising. Management frames the opportunity as building AI-powered infrastructure for performance advertising across the consumer internet – a market that runs into the hundreds of billions of dollars annually, while APP’s current footprint remains relatively modest outside mobile gaming.
The largest near-term catalyst is the global self-serve rollout of AXON in June 2026. Historically, advertiser onboarding was relatively manual and relationship-driven, limiting scale despite strong demand. The self-serve model, combined with new AI-powered creative tools – including automated landing pages, interactive ads, and video-generation capabilities – is expected to dramatically lower barriers for small and mid-sized businesses and accelerate adoption in non-gaming categories by reducing content-creation friction.
At the same time, APP continues expanding the supply side of its ecosystem, strongly benefitting from the rise of hybrid monetization in gaming – where titles blend in-app purchases with advertising – creating more inventory without requiring additional app-user growth. Meanwhile, APP’s expansion into consumer advertising allows publishers to monetize audiences using non-gaming ads instead of direct gaming competitors.
The opportunity is large, but so is the competition. Meta, Google, TikTok, Amazon, and Unity all operate inside overlapping advertising ecosystems, while AI-driven automation could eventually compress parts of the software stack. Execution also matters: the self-serve rollout, creative tooling, and expansion into newer verticals all introduce operational complexity. Still, AppLovin is increasingly evolving from a leading gaming ad platform into a scaled, AI-driven advertising infrastructure company, gaining share in a rapidly expanding market.
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The House Edge
AppLovin’s financial profile stands out even among high-growth technology companies. The business is scaling rapidly while delivering exceptional profitability and cash generation. Q1 2026 extended that trend decisively. Revenue climbed 59% year-over-year to $1.84 billion, above both management guidance and analyst expectations, marking APP’s seventh consecutive revenue beat and twelfth straight adjusted EPS beat.
Even more striking was the profitability underneath that growth: adjusted EBITDA reached $1.56 billion with an 85% margin, while GAAP net income rose 109% to $1.21 billion, or a 65% net margin. Very few companies achieve sustained ~60% revenue growth alongside margins at this level.
This trend has built over multiple quarters. Revenue has more than quadrupled since Q2 2023, while adjusted EBITDA margins expanded from approximately 65% to 85% over the same period. Net margins followed a similar trajectory, climbing from roughly 24% to 65%. The improvement stems from powerful operating leverage rather than cost-cutting, as APP continues investing heavily into AXON optimization, onboarding infrastructure, and AI tools. R&D investments have grown considerably, yet sales and marketing expenses have risen only modestly compared with revenue, highlighting the scalability of the platform model.
Cash generation has become one of APP’s strongest financial qualities. Operating cash flow reached approximately $1.29 billion in Q1 and was closely matched by free cash flow, reinforcing the unusually narrow gap between earnings and cash conversion. The company ended the quarter with $2.76 billion in cash and equivalents. While long-term debt stands at roughly $3.5 billion, current profitability and cash generation significantly ease balance-sheet concerns.
Q1 growth was especially notable because digital advertising demand is usually seasonally softer after Q4 holiday spending – yet APP still delivered 11% sequential revenue growth. Advertiser spend on AppLovin’s platform in the consumer vertical (non-gaming) accelerated sharply, jumping 25% between January and March 2026. Data from April – normally a slower period – reinforces this view, as consumer advertiser spend reached a record, even climbing above the peak months of the 2025 holiday season, signaling real underlying strength and momentum in the consumer vertical.
Guidance suggests the momentum is accelerating. AppLovin expects Q2 revenue of $1.915-1.945 billion, implying approximately 52-55% year-over-year growth, alongside adjusted EBITDA of $1.615-1.645 billion with margins remaining around 84-85%. Those figures again came in well above Wall Street expectations. Importantly, the company generated these results and guidance before broad public access to its self-serve AXON platform, which launches globally in June and could meaningfully accelerate advertiser onboarding, reinforcing the argument that APP may still be early in its broader advertiser-expansion cycle.
Source: AppLovin, Q1 2026 Financial Update
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Auction Winner
AppLovin is best compared to a new generation of AI-powered advertising infrastructure companies – platforms built around automated bidding, algorithmic optimization, and performance-driven ad spending rather than traditional media ownership. The Trade Desk serves as the clearest large-scale comp, sharing APP’s focus on independent adtech infrastructure, AI-driven targeting, and strong operating leverage. Unity offers the closest overlap inside mobile gaming and app monetization, where both companies compete for developer advertising and user-acquisition budgets. Criteo provides a useful comparison for APP’s expansion into broader consumer performance marketing, while PubMatic captures the publisher and auction-infrastructure side of programmatic advertising.
While the group shares many similarities, the companies differ significantly in end markets, underlying fundamentals, and execution – resulting in wide dispersion in stock performance. The Trade Desk has lost nearly three-quarters of its market value over the past year, driven by growth deceleration, execution missteps, and structural headwinds in programmatic advertising. Criteo’s near-50% decline reflects its struggle to move beyond its legacy cookie-based model amid persistent weakness in retail media. PubMatic’s volatile path to a ~18% loss highlights classic small-cap adtech challenges: high volatility, fleeting diversification hopes, and ongoing pressure on its legacy supply-side platform.
In contrast, APP and Unity both delivered similar ~30% gains over the past year, with nearly identical chart patterns – peaking in December 2025, sharp declines, and strong rebounds from early April. Both benefit from mobile gaming exposure and AI tailwinds in game development and hybrid monetization. However, their stories diverged: Unity’s recovery stemmed from successful restructuring and improved execution after years of operational issues. AppLovin’s outperformance reflects a rarer combination the market rewards: accelerating revenue growth, industry-leading margins, robust cash flow, and a clear AI-driven narrative backed by measurable results. That helps explain why analysts still see more than 37% average upside for the Strong Buy-rated APP shares.
This additional upside is supported by a valuation profile that appears relatively moderate for a company delivering hyper-growth alongside exceptional fundamentals. The sharp December-March selloff removed much of the excess from APP’s multiples, with several valuation metrics now trading at meaningful discounts to their five-year averages and moving closer to broader Technology-sector medians. The stock now trades roughly in line with Unity across several metrics, despite AppLovin delivering materially stronger growth, profitability, and cash generation. Most striking is APP’s forward PEG ratio of roughly 0.73, suggesting the market is still undervaluing the company’s earnings-growth trajectory.
In addition to stock-price appreciation, AppLovin stands out as one of the most aggressive buyback stories in the growth-tech universe today. Its exceptional profitability and cash generation enable a high-volume, consistent share-repurchase strategy, serving as a key pillar of capital return alongside heavy reinvestment in growth. Since launching its original program in 2022, the company has repurchased over 22% of its shares. The authorization has been scaled up multiple times, most recently in November 2025, bringing total available capacity to $3.3 billion. In 2025, AppLovin repurchased $2.58 billion of stock, followed by another $1.0 billion in Q1 2026. At the current pace, buybacks are poised to remain a meaningful driver of per-share earnings growth even as underlying operating growth gradually normalizes.
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To Sum It All Up
AppLovin is increasingly positioning itself at the center of a major shift in digital advertising – away from broad audience targeting and toward AI-driven, performance-based optimization built around measurable outcomes. What began as a mobile gaming monetization platform is evolving into a broader advertising infrastructure layer spanning consumer apps, e-commerce, and potentially much larger performance-marketing categories over time. The company’s combination of proprietary data, real-time auction intelligence, and machine-learning optimization is creating a feedback system that becomes more valuable as adoption expands. At the same time, the launch of its global self-serve platform could materially widen advertiser access and accelerate scaling beyond gaming. AppLovin increasingly looks less like an adtech company and more like an emerging AI-driven infrastructure platform gaining market share throughout the digital advertising ecosystem.
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Smart Growth Portfolio
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Disclaimer
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