AppLovin (NASDAQ: APP) crashed another 15% this morning as investors reacted “reflexively” to Google’s latest artificial intelligence (AI) revelation – Project Genie.
APP has sold off rather aggressively since the start of this year, sliding decisively below its major moving averages (MAs) and handing technical momentum back to the bears.
At the time of writing, AppLovin stock is down nearly 40% versus its January high.
Why investors see Project Genie as a threat for AppLovin stock
Google Project Genie is a sophisticated research prototype that allows users to generate interactive 3D environment from simple prompts.
Wall Street currently views this “generative game engine” as a disruptive force that could bypass traditional development pipelines.
There’s a palpable fear that if users can manifest high-quality gaming experiences instantly, the dominance of established platforms and discovery engines could evaporate.
In short, AppLovin’s core value proposition – helping developers both scale and monetize complex software – might diminish if the barrier to entry for creating competing content drops to near zero.
This potential commoditization of the entire mobile gaming landscape on the back of Project Genie is what’s weighing on APP stock today.
Why Deutsche Bank sees Genie as a tailwind for APP shares
While the broader market panicked, Deutsche Bank analysts stepped in to provide a “contrarian” perspective, arguing the selloff in AppLovin shares is rather “overdone”.
According to them, it’s “far too early” to accurately predict just how disruptive Genie might prove.
Crucially, the firm believes Google’s innovation “won’t replace game development – nor will it disrupt the current mobile game discovery ecosystem.”
In fact, Deutsche Bank views Project Genie as a potential productivity booster that may make it a tailwind for APP over time.
It could simplify the creative process for those with limited technical skills – ultimately leading to a massive surge in game content that requires AppLovin’s sophisticated advertising infrastructure, the analysts argued.
Should you invest in AppLovin today?
Deutsche Bank maintains that the “ongoing weakness is a clear buying opportunity” because the fundamental demand for game discovery remains intact.
If Project Genie leads to a higher volume of games entering the market, the need for AppLovin’s monetisation and user acquisition tools will likely intensify, not disappear.
The surge in content “should ultimately serve to enhance ads business” of space leaders, its experts told clients in a research note on Wednesday.
All in all, the investment firm believes this sell-off in APP shares on February 4 has “meaningfully improved” their overall risk-reward profile, making them attractive as a long-term holding.
Note that options traders are also currently pricing in a 25% rally in AppLovin Corp by mid-April, which means this advertising technology stock could be trading just a tad below $500 in less than three months.
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