AppLovin (APP), a stock that once captivated Wall Street with stellar performance, is now facing a more cautious outlook from Piper Sandler. The investment firm has downgraded the ad software company's stock to 'neutral' from 'overweight,' citing concerns following a mixed second-quarter earnings report and third-quarter profit guidance that fell short of expectations. Analyst James Callahan also significantly slashed his price target for the stock to $385 from $665, signaling a potential downside of 7.9% from its recent closing price.
The downgrade comes as AppLovin's shares tumbled more than 16% in premarket trading. Callahan expressed apprehension regarding the company's ability to consistently meet or exceed analyst expectations. "Mgmt attributed the miss to the timing of model improvements, which will reverse in 3Q. Our concern: we think the frequency or magnitude of directed model improvements may need to be larger going forward in order to hit Street expects," Callahan wrote in a note to clients. He added that this situation might also explain the higher compute costs observed in the second quarter and ongoing investments in new model architectures.
Despite acknowledging management's strengths and the company's market position, Callahan stated, "we have more questions than answers on beat/raise cadence from here, and move to the sideline." This cautious stance contrasts sharply with AppLovin's past performance. In 2024, the stock was a top performer, surging an impressive 713%, and followed that up with another 108% gain in 2025. However, the stock has struggled this year, declining 38%, amidst a broader downturn in software stocks. The iShares Expanded Tech-Software Sector ETF (IGV) is down 4% in 2026, while the S&P 500 has climbed 13% to reach record levels.
Notably, most analysts remain optimistic about AppLovin's prospects. According to Refinitiv data, 29 out of the 32 analysts covering the stock recommend it as a 'buy' or 'strong buy,' underscoring the divergence in sentiment between Piper Sandler and the broader analyst community.
