Don't Bet Against AppLovin: The Case Against the Shorts

Tech titan AppLovin Corp. (NASDAQ: APP) is one of the more unusual stories in the market right now. The $230 billion company operates an advertising platform that helps app developers drive engagement and monetization. It might not be exactly a household name, but the stock has still rallied close to 100% this year.

What makes this rally all the more intriguing is how contested it remains. More than 5% of AppLovin’s float is sold short, placing it among the most heavily shorted stocks in the mega-cap universe. In other words, even as the share price has marched higher, a meaningful cohort of investors is betting on a sharp reversal. Given how consistently the company has delivered this year, that’s a bold stance to be taking.

There are a few theories behind why this is the case. For one, AppLovin trades at a juicy valuation, with its price-to-earnings ratio currently near the top of its multi-year range. In addition, earlier this month, the bulls failed to push the stock through its prior all-time high, raising the prospect of a dangerous double-top formation that can often precede a trend reversal. 

Despite these factors, there are several reasons to think the shorts have got AppLovin wrong. If these reasons hold true, AppLovin could be set to continue the rally in 2026. 

Reason #1: Rock-Solid Fundamentals

The most direct challenge to the short thesis is AppLovin’s underlying fundamental performance. In its most recent earnings report last month, the company comfortably beat analyst expectations. Not only did revenue jump nearly 70% year-over-year (YOY), but it also reached a record high. 

Just as importantly, management paired that performance with upbeat forward guidance. Growth is not only accelerating, but margins are also holding up better than skeptics might expect. That combination is rarely seen with companies on the verge of a sustained selloff.

This wasn’t exactly a flash-in-the-pan kind of report, either, but a pattern that’s been repeated throughout the year. When a company is reporting record performance and maintaining strong guidance, the burden of proof shifts to the skeptics. The data suggest AppLovin is a growth story still in motion—not one about to reverse.

Reason #2: Analysts Call For More Upside

Alongside impressive fundamentals, the bears also have to contend with the consistently bullish analyst support. Over the past month, ratings updates have been almost unanimously bullish, with multiple Buy ratings reiterated and price targets pushed higher across the board.

Take Scotiabank, for example, which identified a fresh $750 target last month, or Citi, which set an $820 target for AppLovin.

That’s since been trumped by the team at Jefferies, who went even more bullish with an $860 target.

Even after the stock’s sharp run, these targets suggest there’s still as much as 25% additional upside to be had from current levels.

Yes, AppLovin might have a higher price-to-earnings ratio (P/E) right now than in recent years, but in this context, the valuation could be seen as a reflection of growth potential rather than a warning sign. That’s because when analysts continue to raise their expectations alongside strong share price performance, it’s a pretty clear signal that expectations are evolving alongside the stock, not lagging increasingly behind it. As a bear, this is the kind of setup that can keep you up at night. 

Potential Short Squeeze

The cherry on top of all this, of course, is that high short interest can quickly fuel the fire when a stock continues to rally. If AppLovin continues to execute and close the gap toward the latest analyst targets, short sellers may be forced to throw in the towel. 

This would force them to sell stock to close out their positions, which would only add to the already strong momentum. With just a few days left until Christmas, it might not be too late for the bulls to add a short squeeze to their wish lists.

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The article "Don’t Bet Against AppLovin: The Case Against the Shorts" first appeared on MarketBeat.