The Nasdaq Composite (^IXIC 0.87%) is currently in market correction territory, meaning the index is more than 10% below its recent bull-market high. However, most Wall Street analysts see the decline as a good opportunity to buy shares of Nvidia (NVDA 1.63%) and AppLovin (APP 6.51%).
- Nvidia is currently 26% below its high. The median target price of $175 per share implies 60% upside from the current share price of $109.
- AppLovin is currently 46% below its high. The median target price of $550 per share implies 103% upside from the current share price of $270.
Here's what investors should know about Nvidia and AppLovin.
NASDAQ: NVDA
Key Data Points
Nvidia: 60% upside implied by the median target price
Nvidia's invention of the GPU in 1999 revolutionized computer graphics, but those chips have since become the industry standard in accelerating complex data center workloads like artificial intelligence (AI). Nvidia has as much as 95% market share in AI accelerators, and analysts generally expect the company to maintain its dominance through the decade.
The company reported exceptional financial results in the fourth quarter, beating estimates on the top and bottom lines. Revenue increased 78% to $39 billion on strong sales growth in the data center segment, driven by demand for AI infrastructure, and non-GAAP (generally accepted accounting principles) earnings rose 71% to $0.89 per diluted share.
Nvidia stock plummeted following reports that Chinese start-up DeepSeek had trained sophisticated large language models at a fraction of what U.S. companies paid. Whether the company was completely honest in its cost estimates is questionable, but analyst tend to agree DeepSeek achieved some level of improved cost efficiency via innovative training techniques.
Following those reports, investors understandably worried demand for Nvidia GPUs would not be as robust as previously expected. However, capital spending forecasts from major cloud services companies dispelled that concern to some degree. Additionally, CEO Jensen Huang recently said AI will need 100 times more computing power than anticipated at this point last year.
Wall Street estimates earnings will increase 51% in fiscal 2026, which ends in January. That makes the current valuation of 38 times earnings look downright cheap. For context, Nvidia traded at 58 times earnings just before the ChatGPT launch started the generative AI boom. That seems nonsensical when Nvidia is arguably a much stronger business today.
The market evidently expects earnings growth to decelerate hard in the future. But I believe the market is overestimating the extent of that deceleration, which creates an opportunity for patient investors. The AI revolution will be a multi-decade event, much like the adoption of e-commerce and cloud computing, and Nvidia is likely to be one of the biggest winners.
NASDAQ: APP
Key Data Points
AppLovin: 103% upside implied by the median target price
AppLovin develops adtech software that lets mobile developers market and monetize their applications. The company also provides solutions that serve the same purpose for connected TV publishers, and it is currently building a similar product for e-commerce brands. Its software leans on a recommendation engine called Axon, which uses machine learning algorithms to target ad content in a highly effective manner.
AppLovin reported strong fourth-quarter financial results. Revenue increased 44% to $1.4 billion, and GAAP net income soared 253% to $0.49 per diluted share. "During the quarter, our advertising business continued to drive increased performance for our mobile gaming partners, combined with positive early results for e-commerce advertisers during the holiday season," said CFO Matt Stumpf.
Investors should be aware that several short-sellers have targeted AppLovin in recent weeks. Fuzzy Panda and Culper Research published short reports in late February, followed by Muddy Waters in late March. Allegations include data theft, illegal tracking, and backdoor installations. The Culper report even included a meme that reads, "The secret ingredient is crime."
CEO Adam Foroughi responded promptly. In February, he rejected the allegations regarding app store policy violations, data theft, and illegal tracking. "The reports are littered with inaccuracies and false assertions," he wrote. And in March, he rejected claims of high turnover with the new e-commerce advertising product, saying it reached a billion-dollar run rate in mere months. "This isn't luck; it's a testament to our technology and execution," he added.
Regardless, the short reports are a source of ongoing risk. AppLovin recently hired a legal firm to "examine the circumstances and motivations behind the dissemination of misleading or inaccurate information." In the meantime, Wall Street currently estimates earnings will grow 44% in 2025. That makes the current valuation of 58 times earnings look very reasonable. Investors comfortable with the risks should buy a few shares today.
