AppLovin Shares Tumble 30% in January Amid Short-Seller Scrutiny, AI Disruption Fears

Shares of AppLovin Corporation (NASDAQ: APP), a leading player in mobile advertising technology, tumbled throughout January, closing the month down 30%. The decline, tracked by S&P Global Market Intelligence, marks a sharp reversal for a stock that had more than doubled in 2025 on the back of robust growth in its software platform.

The sell-off was driven by a confluence of sector-specific and company-level headwinds. A broad re-rating of software stocks, partly fueled by investor uncertainty over the long-term competitive threats posed by artificial intelligence, put pressure on high-multiple names like AppLovin. Despite the January drop, the company's valuation remains elevated, trading at a price-to-sales ratio of approximately 31.

Company-specific concerns intensified mid-month. On January 20, short-seller firm CapitalWatch published a report alleging AppLovin circumvented anti-money-laundering controls and engaged in other financial improprieties. AppLovin swiftly denied the allegations, labeling them "false, misleading, and nonsensical." While the company has faced similar short-seller attacks in the past without lasting damage, the report contributed to the negative sentiment. Furthermore, reports of a potential SEC investigation into the company's data collection practices have created an overhang.

The most significant single-day drop occurred on January 30, when shares plunged 17%. The catalyst was Google's unveiling of "Project Genie," an AI-powered platform designed to simplify game creation. The announcement spooked investors across the gaming sector, who feared an influx of new content could disrupt the market. However, analysts note that AppLovin's core business is advertising technology—monetizing games through its software platform—not game development itself. The company sold its owned-and-operated games business in 2023. Some market observers argue the sell-off may have been an overreaction, as a larger universe of mobile games could theoretically expand AppLovin's addressable market.

All eyes are now on AppLovin's fourth-quarter earnings report, scheduled for February 11. The results will be a critical test of its underlying growth trajectory. Analysts project revenue of $1.61 billion, representing 17% year-over-year growth (adjusted for the divestiture), and a significant jump in adjusted earnings per share to $2.95 from $1.73 a year ago. Strong profitability will be essential to justify its premium valuation to skeptical investors.

Market Voices: Investor Reactions

David Chen, Portfolio Manager at Horizon Capital: "This feels like a classic case of sector-wide panic overshadowing company fundamentals. The Google news hit all gaming-adjacent stocks, but AppLovin's exposure is indirect. Their AXON platform's performance in the upcoming earnings will be the real story."

Rebecca Shaw, Independent Retail Investor: "I've held APP through previous short-seller dramas, and the company has always executed its way out. The valuation is high, but so is the growth. I'm viewing this dip as a potential buying opportunity ahead of earnings."

Marcus Thorne, Editor at 'The Short Report': "The market is finally waking up to the reality that AppLovin's valuation was built on sand. Between the SEC cloud, questionable practices highlighted by researchers, and now an existential AI threat from Google, this stock has much further to fall. The 30% drop is just the beginning."

Anita Lopez, Tech Analyst at ClearView Research: "The key disconnect is between AppLovin's past as a game developer and its present as an ad-tech vendor. Project Genie is a threat to developers, not necessarily to the tools that help them monetize. However, the regulatory scrutiny is a tangible risk that needs monitoring."

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Jeremy Bowman has positions in AppLovin. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This analysis was originally published by The Motley Fool.