Spotify vs. AppLovin: Which AI-Powered Ad-Tech Stock is the Better Buy?
In today's digital landscape, artificial intelligence (AI) is reshaping the way businesses operate and interact with their customers. Two companies at the forefront of this transformation are Spotify Technology S.A. (SPOT) and AppLovin Corporation (APP). Both are leveraging AI within their respective ecosystems to offer compelling ad-tech strategies that are reshaping the way we experience and engage with media and advertising.
Spotify: AI-Powered Personalization Deepens Engagement
Spotify is using AI to redefine user experience and deepen engagement on its platform. Personalized AI features like Spotify Wrapped have become annual cultural phenomena, leveraging machine learning to analyze vast amounts of user listening data. This feature not only entertains but also strengthens brand loyalty by offering users a unique snapshot of their musical journey.
The company's AI DJ is a dynamic tool that utilizes advanced algorithms to curate personalized playlists in real-time. By incorporating voice-command functionality, the AI DJ offers an interactive, radio-like experience that mimics human curation while adapting to individual tastes. This innovation fosters greater user retention and time spent on the platform, directly enhancing monetization potential.
AppLovin: Accelerating Transformation with AI-Driven Expansion
AppLovin is accelerating its transformation from a mobile-first ad platform into a diversified, AI-powered advertising leader. At the heart of this evolution is its strategic push into web advertising, e-commerce, and connected TV (CTV), driven by the acquisition of Wurl, a streaming-focused content distribution and monetization platform.
Wurl enables AppLovin to extend its AI-driven monetization capabilities beyond mobile, unlocking high-growth opportunities in smart TVs and digital commerce. The CTV market is witnessing rapid growth as viewers migrate from linear to streaming platforms. Wurl's infrastructure synergizes with AppLovin's advanced AXON AI engine, allowing the company to deliver hyper-targeted, performance-driven ad campaigns across CTV devices.
On the mobile front, AppLovin's next-generation AI engine, Axon 2, launched in the second quarter of 2023, has dramatically improved ad performance. Since its rollout, Axon 2 has helped quadruple ad spend on the company's platform, powering an estimated $10 billion annual run rate from gaming clients and securing AppLovin's place among the top global ad tech firms by valuation.
Zacks Estimates and Valuation
The Zacks Consensus Estimate for APP's 2025 sales and EPS indicates year-over-year growth of 17% and 89%, respectively. EPS estimates have been trending upward over the past 60 days. Meanwhile, the Zacks Consensus Estimate for SPOT's 2025 sales suggests 818% year-over-year growth, while EPS is expected to grow 57%. However, EPS estimates for SPOT have been trending downward over the past 60 days.
When it comes to valuation, SPOT is trading at a forward sales multiple of 7.03X, below its 12-month median of 5.05X. APP's forward sales multiple stands at 18.82X, below its median of 16.48X.
Conclusion: AppLovin the Better Buy Now
While both Spotify and AppLovin are leveraging AI to drive ad-powered growth, AppLovin appears better positioned in the near term. Its Axon 2 engine is delivering massive gains in ad efficiency and spend, while Wurl expands its AI reach into fast-growing CTV and digital commerce markets. APP's stronger EPS growth estimates and AI-driven recovery in a post-IDFA world further support its momentum. Although Spotify offers deeper user engagement and a more attractive valuation, its downward-trending EPS estimates raise concerns. For investors seeking AI-led scalability and ad-tech upside, AppLovin currently stands out as the more compelling buy.
While APP carries a Zacks Rank #1 (Strong Buy), SPOT carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
