An analyst advised buying AppLovin stock. Google's AI constructor does not threaten it

Google's Project Genie platform, capable of creating virtual game worlds, will not be able to undermine the position of AppLovin, a developer of an application for advertising in mobile games, according to Benchmark Equity Research, the investment bank's note cited by Barron's. Benchmark reiterated its recommendation to buy the software developer's shares and expects them to grow by 60%.

A new artificial intelligence-based project from Google may change the approach to video game development, but the position of the AppLovin platform in the mobile gaming ecosystem remains stable, Benchmark Equity Research believes. The investment bank reiterated a "Buy" rating on shares of AppLovin on Monday, February 2 with a target price of $775, up 60% from the last close of trading.

Late last week, shares of game developers such as Unity Software and Roblox plummeted after Google unveiled Project Genie. AppLovin's quotes also fell: on Friday, its securities fell by 17%. On Monday, they began to recover their losses, rising 1.7% to $481.2.

Project Genie is an experimental AI platform that enables the creation of text- and image-based game worlds without the use of a traditional game "engine." Although the tool is still in the prototype stage, it points to a vector of development for the industry, Barron's notes. "Over time, such tools could significantly reduce the cost, skill requirements, and time commitment of creating interactive content," Benchmark analyst Mike Hickey wrote.

As recently as a year ago, the release of Project Genie might have posed a problem for AppLovin, but the company has since sold off its gaming division, Barron's notes. By contrast, AppLovin's core business of advertising and monetizing mobile games could benefit from the change. Benchmark believes that over time, developers will eventually distribute Genie-created games as standalone apps on Android and iOS, rather than being limited to Alphabet's ecosystem.

"AI tools change the process of creating games, but not how they are promoted, find their audience, and monetized," Barron's quoted Hickey's note as saying. - AppLovin works at the monetization and distribution levels, not at the content creation stage."

Benchmark analysts admit that advertisers will feel the impact of AI tools to some extent: cheaper development may lead to shorter game lifecycles and accelerated user loss, which may reduce audience engagement costs for individual projects. However, this will not necessarily lead to a reduction in aggregate advertising budgets. Benchmark believes that if development becomes easier and the market becomes more fragmented and competitive, demand for performance advertising such as AppLovin's could increase.

Jefferies analysts on Monday also emphasized that Project Genie is at an early stage of development. In the near term, its use is likely to be limited to prototyping new ideas rather than full-fledged games on demand. Even Unity, which develops a game environment for running games, may not be affected: Jefferies believes it is more likely to integrate Google's AI models into its own game model than lose customers due to the move to Genie.

At the same time, Jefferies predicts that AppLovin's solutions will become even more in demand. "If two game studios create approximately the same games with the help of AI, the one that spends more money on promotion and shows its game to a larger number of users will win," the analysts noted. Investment Bank also reiterated a buy recommendation on AppLovin's shares and set a target price of $860, expecting the stock to rise 78%.

Wall Street is looking positively at the advertising platform developer's stock: 27 of 32 analysts tracking the company's shares advise buying them, MarketWatch shows, four advise holding and only one advises selling. The consensus price target is $746.8 per share, suggesting a 54% upside potential.

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