AppLovin shares tumbled more than 19% in late trading Thursday, making it one of the worst performers in the S&P 500, as investors reacted to disappointing quarterly results and fresh indications that the company's artificial intelligence models are losing competitive edge.

Shares of AppLovin (APP) were down 19.2% in late afternoon trading, on track for their largest single-day percentage decline since March 2025. The company operates a software platform for businesses and game developers and also develops AI models for digital advertising.

The company's models predict ad engagement, click-through rates, and website interaction rates, which are highly valuable to advertisers targeting the gaming, e-commerce, and subscription services sectors. According to AppLovin's management, model performance is the primary driver of the company's growth.

However, in a research note, William Blair analyst Ralph Schackart described the second-quarter model progress as "less than normal," adding that the launch of the company's next-generation model has been delayed until after the current quarter. Schackart noted that the key debate going forward will be whether AppLovin is experiencing a "fundamental slowdown" or "timing-related volatility in its model development cycle."

AppLovin reported second-quarter revenue of $1.92 billion, a 53% year-over-year increase, but this fell short of the $1.94 billion expected by analysts tracked by FactSet. The company also reported adjusted EBITDA that was $1.2 million below the low end of its guidance range. Management projected third-quarter revenue between $2.055 billion and $2.085 billion, compared to the Wall Street consensus of $2.074 billion.

Benchmark analyst Mike Hickey was unconvinced by AppLovin's explanations for the second-quarter shortfall. In a Thursday report, he wrote that while management suggested "architectural changes and additional compute power" could support the development of more complex models, he disagreed. "We do not believe that simply increasing compute power alone provides a durable solution to improve the cadence and predictability of meaningful version releases," he said. Hickey cut his price target on the stock from $775 to $500. Shares of AppLovin were trading above $340 as of the latest check on Thursday.