Sands Capital sees value in AppLovin despite AI and competition headwinds

Sands Capital Management’s Q1 2026 investor letter for its Select Growth Strategy identified AppLovin Corporation as a key holding, noting that the mobile technology company’s shares declined alongside broader weakness in gaming and ecommerce sectors. The downturn was exacerbated by the launch of Google’s generative gaming platform, Project Genie, and growing concerns that Meta Platforms may emerge as a more aggressive competitor in the digital advertising space.

Despite the share price pressure, the letter cited AppLovin’s robust fourth-quarter performance, which included 66 per cent year-on-year revenue growth and advertising EBITDA margins reaching 84 per cent. Sands Capital described these figures as evidence of continued momentum in the company’s core advertising business, suggesting that the market’s negative reaction may have overstated the immediate impact of competitive threats.

The fund manager presented a mixed view on the risks facing AppLovin. While acknowledging that competition from Meta Platforms represents a credible longer-term threat, Sands Capital viewed generative gaming as a potential accelerant that could expand content supply and ultimately benefit AppLovin’s distribution platform. This assessment was weighed against what the firm described as an attractive valuation, supported by the expectation that AppLovin will double its ecommerce gross advertising spending to over $2.5 billion in 2026.

Market dynamics in the first quarter were characterised by sharp dispersion driven by artificial intelligence advances, with capital shifting toward asset-heavy sectors benefiting from AI infrastructure demand. Geopolitical tensions with Iran caused a broad-based risk-off move late in the quarter. Consequently, the Select Growth Strategy underperformed the Russell 1000 Growth Index, returning -12.9 per cent compared to the index’s -9.8 per cent loss, as its focus on higher-growth, asset-light businesses faced headwinds from the rotation into more capital-intensive sectors.

AppLovin’s financial metrics for the quarter further illustrated its scale, with revenue rising 59 per cent year-over-year to $1.84 billion and increasing 11 per cent sequentially. The stock closed at $520.84 per share on June 9, 2026, reflecting a 14.84 per cent gain over one month and a 35.84 per cent rise over the past 52 weeks. The company’s market capitalisation stood at $174.97 billion, although hedge fund interest appeared to wane slightly, with 91 portfolios holding the stock at the end of Q1, down from 108 in the previous quarter.