AppLovin (NASDAQ: APP) stock has had a roller-coaster 2025, reaching an all-time high before being cut in half after it came under scrutiny in a short-seller report. Since then, the stock has recovered most of those losses after the advertising tech company posted blowout earnings and made a bold move to publicly bid on acquiring TikTok.

Let's examine the recent news and determine whether the stock is overhyped or if its lofty valuation is justified.

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AppLovin's growth demands attention

AppLovin recently reported its results for the first quarter of 2025, and the company did not disappoint. Total revenue rose 40% year over year to $1.48 billion, driven by its advertising segment, which matches advertisers and app publishers via auctions at a large scale and microsecond speeds.

The mobile tech company has accelerated its revenue by shifting its primary focus from gaming advertising to the broader global advertising economy, which opens up an opportunity for 10 million advertisers globally, according to management. During the first quarter, the company's advertising revenue increased to $1.16 billion, representing a 71% year-over-year rise.

Meanwhile, AppLovin generated $826 million in free cash flow, a key profitability metric, representing a 114% year-over-year increase. With its positive free cash flow, management has elected to repurchase its stock aggressively rather than pay down its $3.2 billion in net debt. Specifically, the company spent $1.2 billion in the first quarter, nearly $400 more than the company generated in free cash flow. Over the past three years, management has reduced its share count by 9.3%, which not only increases existing shareholders' ownership stake, but also suggests management is bullish on the company's long-term prospects.

In other developments, AppLovin sold its declining mobile gaming division to Tripledot Studios for $400 million in cash, along with an estimated 20% equity stake. The deal is expected to close as early as Q2 2025, further signaling management's confidence in its strategic pivot to advertising.

Enter TikTok

The most headline-grabbing move of 2025, however, wasn't AppLovin's earnings report or the sale of its gaming division; it was when the company disclosed that it is prepared to make a serious offer to acquire TikTok's global operations, should regulatory pressure force a divestiture. The bid would allow Chinese investors to retain a stake in TikTok, while AppLovin would manage its global operations. In CEO Adam Foroughi's words, AppLovin can offer a "much stronger bid than others" thanks to its technical infrastructure, monetization expertise, and real-time ad marketplace.

The price tag would likely be costly for the social media platform, with a reported 1.6 billion global users generating an estimated $23 billion in revenue in 2024. It could also be a lengthy and politically fraught acquisition process. Still, the possible move is exciting for investors to dream about and could spur the next phase of growth for AppLovin, which had a recent market capitalization of $140 billion.

Image source: Getty Images.

The short report and the AppLovin CEO's response

Of course, fast-growing tech companies often attract critics, and AppLovin is no exception. Recent short reports, including one from the investigative investment company Muddy Waters Research, accused AppLovin of violating the terms of service of key platform partners, resulting in an observed 23% client churn rate in the first quarter of 2025.

In an open-letter rebuttal, Foroughi addressed the claims head-on, arguing that "a few nefarious short-sellers are making false and misleading claims aimed at undermining our success." Furthermore, Foroughi called the report "littered with inaccuracies and false assertions," and emphasized that the company operates in full compliance with App Store policies, stressing that "there has been no churn" among its advertising clients.

For investors, it's important to understand that companies publishing short reports typically hold short positions in the companies they investigate. This means they are financially incentivized to release negative research -- whether or not it's fully substantiated. Notably, AppLovin's stock dropped nearly $66 to $261.70 per share after the report was published in March, but has since recovered and then some to over $414 per share as of this writing.

Is AppLovin a buy, sell, or hold?

Before buying any stock, it's essential to consider its valuation -- especially with high-growth tech companies, which often trade at premium levels due to their long-term potential. AppLovin is no exception, currently trading at 56.6 times its trailing-12-month free cash flow of $2.5 billion. However, that premium appears more reasonable given that free cash flow has grown nearly 80% year over year. The stock is also trading about 33% below its peak price-to-free-cash-flow multiple, suggesting a slight discount for new investors.

For growth investors who think long-term and believe in the power of scalable software and monetization, AppLovin remains a buy, regardless of whether or not TikTok is involved.

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Collin Brantmeyer has positions in AppLovin. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.

Tech stocks have taken investors on a wild ride in 2025, with tariffs, interest-rate jitters, and a new presidential administration fueling market volatility. But while many are running for the exits, savvy investors know that short-term chaos can create long-term opportunity.

Here are a few of those stocks -- trading at significant discounts -- that are worth a closer look while Wall Street catches its breath.

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1. AppLovin

AppLovin (NASDAQ: APP) provides technology and tools to help mobile app developers effectively market, monetize, and grow their apps. The stock trades recently traded around $270 per share and has increased by more than 300% since its initial public offering in 2021.

Yet the stock is down roughly 23% in 2025, in part due to the investigative investment firm Muddy Waters Research releasing a short report on the company claiming that AppLovin appears to be violating the platforms' terms of service. As a result, Muddy Waters believes AppLovin could lose business to competitors, claiming a 23% client churn rate in the first quarter 2025.

AppLovin CEO Adam Foroughi pushed back against the short report, describing it as "littered with inaccuracies and false assertions." Foroughi emphasized that the company operates in full compliance with App Store policies and stressed that its business is "based on transparency and integrity."

AppLovin delivered strong financial results in 2024, generating $4.7 billion in revenue and $2.1 billion in free cash flow -- marking year-over-year increases of 43.4% and 100%, respectively. The company has been putting its free cash flow to work by buying back stock, reducing its shares outstanding by 10% over the past three years. As of the end of 2024, it still has $2.3 billion remaining under its share repurchase program.

APP Price to Free Cash Flow data by YCharts

AppLovin's valuation may look steep at first glance -- trading at 43.6 times free cash flow -- but high multiples are par for the course in the world of tech and growth stocks, where investors pay for future potential. What makes AppLovin stand out is its rapid growth: With free cash flow doubling in 2024, the premium looks far more palatable. Plus, the stock is currently trading about 50% below its peak price-to-free cash flow multiple, making this high-growth company look like a bargain.

2. Nvidia

Arguably, at this stage of the artificial intelligence (AI) boom, Nvidia (NASDAQ: NVDA), a chip supplier, has been the largest beneficiary. It provides the ecosystem of software and materials to support AI development. After its stock skyrocketed over the past few years, Nvidia briefly became the world's most valuable publicly traded company.

Since then, the stock has cooled to $104 per share, falling more than 30% from its peak of $153 per share. Despite the price fluctuations, the business is humming along.

In fiscal 2025, Nvidia generated $130.5 billion in revenue and $72.9 billion in net income, representing an incredible increase of 114% and 145%, respectively, compared to fiscal 2024.

One reason for the recent dip in Nvidia's stock is growing uncertainty around tariffs, which could pressure the company's high gross margin. Nvidia's gross margin, a key indicator of cost efficiency and pricing power, stood at 78.4% in fiscal Q1 2025, but management expects it to decrease to between 70.6% and 71% in fiscal Q1 2026. If that projection holds, it would mark the fourth consecutive quarter of margin contraction.

Addressing the issue during the company's February earnings call, CFO Colette Kress acknowledged the uncertainty around tariffs, saying, "It's a little bit of an unknown, it's an unknown until we understand further what the U.S. government's plan is, both its timing, it's where, and how much."

For a mature company like Nvidia, the price-to-earnings (P/E) ratio remains a widely used valuation tool, measuring a company's stock price relative to its earnings over the past 12 months. Currently, Nvidia trades at 35.6 times trailing earnings -- a figure that might seem steep to traditional value investors. However, when considering the forward P/E ratio, which reflects expectations for the next 12 months of earnings, the valuation appears far more attractive at 23.6 times earnings.

NVDA PE Ratio (Forward) data by YCharts

Looking further ahead, Nvidia CEO Jensen Huang's long-term optimism surrounding the AI revolution helps support the company's valuation. On the company's most recent earnings call, Huang outlined a sweeping vision for the role of AI, stating:

Every fintech company will [use AI]. Climate tech companies use AI. Mineral discovery now uses AI ... every higher education, every university uses AI, and so I think it is fairly safe to say that AI has gone mainstream and that it's being integrated into every application.

Are these discounted tech stocks worth buying?

Whenever the market turns turbulent, growth stocks are often the first to take a hit -- and that's exactly what investors are seeing now. Both AppLovin and Nvidia have delivered explosive growth in recent years, resulting in premium valuations. But with the latest pullback, investors finally have a rare chance to scoop up shares at far more reasonable prices. Given the long-term tailwinds behind mobile advertising for AppLovin and the surge of AI for Nvidia, this moment of market uncertainty could end up being a prime opportunity for investors who can look beyond the next few quarters and focus on the long term.

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Collin Brantmeyer has positions in Nvidia. The Motley Fool has positions in and recommends AppLovin and Nvidia. The Motley Fool has a disclosure policy.