This Controversial AI Stock Could Shock Investors in 2026

Among the most controversial artificial intelligence (AI) stocks out there is AppLovin (NASDAQ: APP), which has been the subject of various short-seller reports accusing the company of various misdeeds. The most common accusation against it has been that it installs apps onto users' devices without their permission, which would be a violation of app store policies and could get its software banned from these platforms. However, nothing has ever materialized from these allegations, and AppLovin continued to post strong growth throughout 2025.

However, the shorts haven't given up. A new short-seller, CapitalWatch, has become the fourth to call out AppLovin, accusing it of being heavily involved in money laundering tied to Chinese and Cambodian criminal syndicates. The short report says the company uses an "Ad-Spend-as-Laundering" model. It further claims that AppLovin illegally distributes gambling and fraudulent apps, secretly downloading them onto people's devices without user consent.

While it's rare to see a company so relentlessly attacked, the stock does have its fans. Billionaire hedge fund manager Chase Coleman of Tiger Global Management holds a stake in AppLovin, as does billionaire Philippe Laffont of Coatue Management. Meanwhile, highly regarded investor Michael Lowenstein has more than a third of Kensico Capital's multibillion-dollar portfolio in the stock. It would be hard to imagine that these wealthy investors didn't do their due diligence.

AppLovin has been on a roller-coaster ride over the past year, and reached a peak near the end of 2025. But with its stock down more than 20% so far in 2026, it's trading at a forward price-to-earnings (P/E) ratio of just under 38. While that doesn't sound like a bargain-bin level, it's a much more attractive valuation than it carried a month ago. Moreover, this is a company that last quarter grew its revenue by 68% and its adjusted EBITDA by 79%. Meanwhile, it has been expanding its gross margins, reducing its sales and marketing spending, and generating a boatload of free cash flow.

Image source: Getty Images

In addition, AppLovin has some big opportunities in front of it. It recently introduced a self-serve ad manager that should help bring more small and midsize advertisers to its ad platforms, and it's opening up its platform to international advertisers. It's also looking to move beyond its core mobile gaming market and into new verticals like e-commerce. Management forecasts that its gaming market will grow by 20% to 30% annually, thanks to industry growth and algorithm improvements to its Axon 2 AI-based advertising technology. This could result in continued outsize growth for the company in 2026 and beyond.

After its stock surged by more than 700% in 2024 and more than doubled in 2025, don't be surprised if it rallies from its current slump and shocks Wall Street with another strong performance in 2026.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.