A new artificial-intelligence project at Google could disrupt how videogames are made. But AppLovin's role in the mobile-gaming ecosystem remains intact, according to Benchmark Equity Research.
The firm pushed back on fears that Google DeepMind's Project Genie could threaten AppLovin in a research note Monday, reiterating a Buy rating on the stock and a $775 price target.
Shares were up 2% on Monday. AppLovin fell 17% on Friday, as investors fled gaming stocks -- including Unity Software and Roblox -- in response to Google's announcement that Project Genie was available for Google AI Ultra subscribers in the U.S.
Project Genie is an AI-driven platform that allows users to create gameplay worlds from text and images without relying on a traditional game engine. While the tool is currently a research prototype, it signals where game development is trending.
"Over time, such tools could materially lower the cost, skill, and time required to create interactive content," wrote Benchmark analyst Mike Hickey.
That would have been a problem for AppLovin a year ago, before the company sold off its mobile-gaming business. Today, its core game advertising and monetization business could, if anything, benefit from a shakeup in game development.
Benchmark believes developers will eventually package Genie-created experiences as standalone games and distribute them through Android and iOS, rather than keeping them within Alphabet's ecosystem.
"AI-native creation changes how games are built, but not how they are discovered, acquired, or monetized," Hickey wrote. "AppLovin's exposure sits squarely at the monetization and discovery layer rather than content creation."
Advertisers wouldn't be entirely immune from advancements in AI-driven game development. Lower development costs could mean shorter game lifecycles and faster player churn, Benchmark conceded, potentially reducing user-acquisition spending for individual games.
This change wouldn't necessarily lower aggregate ad dollars, though. In fact, if games become easier for developers to ship, and the gaming market becomes more fragmented and competitive, performance advertising tools like AppLovin could see more demand, Benchmark said.
It is also worth emphasizing that Project Genie remains in its very early stages, analysts at Jefferies wrote in a weekend note. In the near term, the most likely use case for the tool is to prototype new game ideas, rather than to build complete games from prompts, the firm argued.
Even Unity, which does make a game engine, may be fine. Jefferies said it is more likely the company partners with Google to incorporate AI models into its existing engine than that customers abandon Unity to use Project Genie instead.
As for AppLovin, its services could become even more valuable: "If 2 different game studios build equivalent games using an AI world model, the one that gets played more will be from the studio that spends the most on ads to put it in front of the most amount of people," the Jefferies team wrote.
The firm reiterated a Buy rating and an $860 price target for AppLovin stock.
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