The little-known stock that crushed rivals like Nvidia and Palantir to soar 713% last year

Here’s a starter for ten – no conferring or Googling, please. Which US shares were the best performers on America’s Nasdaq market for high tech companies last year?

If you said Nvidia, you’re wrong, even though shares in the microchip designer rose by 177 per cent.

If you plumped for controversial data analytics firm Palantir, you would also be wrong, despite a climb of 341 per cent in 2024.

Palantir is in third place behind bitcoin proxy MicroStrategy, whose shares rose 359 per cent.

Full marks if you guessed the winner was little-known tech star AppLovin. Its 713 per cent gain trounced the tech titans.

Shares in the software sensation tipped as the new TikTok have risen a further 22 per cent this year, valuing it at $139 billion.

If the shares were listed on the London stock market, AppLovin would be the fourth-highest value company in the FTSE 100, ahead of consumer goods giant Unilever, oil company BP and GSK, one of our leading drugmakers.

So what exactly does AppLovin do, why are investors piling in and should you follow suit?

Based in Palo Alto, the tech capital of Silicon Valley, AppLovin is the brainchild of Adam Foroughi. Born in Tehran in 1980, a year after the Iranian revolution swept the Ayatollahs to power, he left as a child with his family to the US.

A graduate of Berkeley University, he worked as a derivatives trader before launching a couple of marketing startups.

He set up AppLovin in 2011 with two business partners, raising $4 million from friends, family and ‘angel’ investors, who back high risk companies at an early stage.

The idea was to connect advertisers with the developers of games on smartphones so the latter could make money from their creations.

Like many good ideas, it was ahead of its time. Playing games on mobiles was still in its infancy.

The ads mainly marketed other games, often developed by rivals. It was also hard to work out what other products interested players.

For years AppLovin seemed to be just another tiny California tech startup dreaming of the big time.

That began to change in 2018 when Wall Street buyout firm KKR invested $400 million, in a deal valuing AppLovin at $2 billion. Flush with cash, AppLovin bought a bunch of mobile gaming studios behind some of the most downloaded titles in the US, including Clockmaker and Bingo Story, while developing more than 200 games itself.

In 2021 it floated its shares on the stock market, riding a wave of interest in online games from people cooped up in bedrooms during Covid.

But this was no passing fad. The mobile games market continued to explode – as did advances in artificial intelligence (AI). These enabled AppLovin in 2023 to launch an updated version of Axon, a powerful ad search engine that competes with the likes of Google.

Axon uses machine learning to put targeted ads on AppLovin’s gaming apps, and those used by studios licensing the technology.

Today AppLovin has more than 1.4 billion active daily users – a key marketing metric that measures engagement – not miles from Facebook-owner Meta’s 3.4 billion.

AppLovin is now a pure ‘adtech’ business after recently selling its studios unit for $900 million.

More than one billion people play mobile games each day – a number that rivals TikTok and Meta Platforms, said Bank of America analyst Omar Dessouky. He told the Wall Street Journal: ‘None of those companies have ever tried to monetise this audience.’

The latest share price surge follows knockout results. Sales leapt 43 per cent to $4.7 billion last year. Net profit quadrupled to $1.6 billion. Its advertising unit, which helps clients buy and sell ads in smartphone apps, saw sales rise by three quarters to $3.2 billion. Having cracked the code for tailored advertising to mobile game players, AppLovin’s AI model is being extended to other industries, including e-commerce.

AppLovin won’t say who might be interested, but analysts reckon Walmart and Amazon could be in its sights, with e-commerce ads expected to be at least 10 per cent of AppLovin’s business this year.

‘The breakthrough is only beginning,’ Foroughi, a billionaire many times over, told investors. ‘This opens up a big opportunity as there are over 10 million businesses worldwide who advertise online.’

Dessouky is one of a number of analysts to raise their share price target for AppLovin. Bank of America is among the most optimistic, raising its forecast from $375 to $580 – versus $415 today.

British investors have yet to catch the AppLovin bug – one leading market commentator privately admitted they had never heard of the company.

Its shares are not on the lists of most popular buys on leading investment platforms such as Hargreaves Lansdown, Interactive Investor or AJ Bell. Even the tech-dominated Scottish Mortgage Investment Trust, Britain’s biggest, does not disclose a stake.

But with the firm being touted as the next TikTok, AppLovin is unlikely to stay below their radar for long.

Should you buy – or is it too risky?

The rise in AppLovin shares is certainly impressive: the question now for small investors tempted to buy is whether they will continue to climb.

Like any shares, tech stocks are not guaranteed to go up and you could lose some or even all of your money.

Because they are US shares, there is also the risk the currency could move against you. One way of spreading your risk is to invest in AppLovin through a UK-based investment fund. The Polar Technology Investment Trust has a small holding. But one UK asset manager that has taken a big bet on the company is Baillie Gifford, which holds the shares via three funds: Global Alpha, US Alpha and Worldwide Long Term Global Growth.

The latter Edinburgh-based fund has built a 1.2 per cent stake in the company which is now worth £1.4 billion but thinks the high-flying shares could have much further to go.

Investing in individual tech shares is not for the faint-hearted. If you do plan to buy directly via an online investment platform you’ll usually need to complete a W-8BEN tax form.