ChatGPT is closing in on 2 billion monthly active users...
Alphabet's (GOOGL) Gemini has a big following, too, with roughly 750 million monthly users.
These are the kinds of numbers we'd expect on the world's largest social media platforms – like Facebook, Instagram, and TikTok.
They each have between 2 and 3 billion monthly users. And the chatbots are quickly catching up. But mass adoption by itself doesn't create a perfect business.
The vast majority of ChatGPT users access the free version of the platform. (Only 5% pay for a subscription.) As a result, its parent company OpenAI is expected to burn through a lot of cash – as much as $14 billion this year.
This is eerily similar to the early days of social media advertising...
Initially, there was no business model – only eyeballs. But folks stayed glued to their screens for billions of minutes... And the ad dollars followed. Now that money is moving toward chatbots.
OpenAI has already started testing ads on ChatGPT's free platform. That's opening up a brand-new patch of digital real estate... and a massive race to monetize it.
The infrastructure behind the chatbot ad rush is already in place...
Every digital platform needs the same infrastructure to display ads – software that matches advertisers with users and pricing tools.
This software analyzes tons of data on users' browsing trends, search histories, and demographics to create detailed profiles.
Pricing tools determine the value of an ad impression in real time. That helps advertisers pay a fair amount and platforms receive a good value for their ad space.
Tiny French ad company Criteo (CRTO) is already experimenting in this space... This is actually the first ad-tech partner for ChatGPT's ad pilot in the U.S.
But with billions of eyeballs in the mix, this won't be a one-company race. The winners will be firms that already know how to monetize user attention on a big scale.
That's why advertising specialist AppLovin (APP) stands out...
We first recommended AppLovin in Hidden Alpha's June 2024 issue. Subscribers have already enjoyed substantial gains since then – about 240% in combined returns.
AppLovin's core capabilities line up well with the future of chatbot advertising. After all, the company got its start in the mobile ad tech space...
It built tools to help app developers find users, keep them engaged, and convert web traffic into dollars.
Over time, that ad engine grew. And AppLovin optimized the whole process... It learned how to place the right ad in front of the right user at the right moment.
Once chatbots become a major mobile destination, advertisers will want the tools that help them target and leverage user attention.
AppLovin is already built for that. And it's steadily tapping into more ad spaces. The company is moving beyond mobile gaming and into high-value territories like Smart TVs and e-commerce.
Across these spaces, AppLovin can capture much better data on what consumers want to buy. This allows it to deliver better results for advertisers... charge more for its optimization tools... and become indispensable.
Despite AppLovin's great run, it's still not crazy expensive...
We can see this through our Embedded Expectations Analysis ("EEA") framework.
The EEA starts by looking at a company's current stock price. From there, we can calculate what the market expects from the company's future cash flows. We then compare that with our own cash-flow projections.
In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.
Alongside our EEA framework, we also like to look at near-term Wall Street expectations. (See the light blue bars below.) That's because analysts tend to have a pretty good grasp of where companies are headed in the next year or two.
AppLovin's Uniform return on assets ("ROA") exploded from 41% in 2021 to 150% last year. That's more than 12 times the U.S. corporate average. And it's just the beginning. Take a look...
Wall Street understands that new mobile frontiers (like chatbot ads) are opening up yet another sales channel for AppLovin. Analysts expect its Uniform ROA to explode to 279% by 2027. Investors expect a little less... 257%.
In other words, the market may be underestimating how valuable AppLovin could be if AI becomes the next great ad channel.
This new ad empire could be just as big as the early days of social media ads...
Back then, the biggest winners weren't just the platforms that captured the most users.
The real value flowed into companies that helped advertisers move from legacy ad spaces, like billboards, to digital spaces on social platforms.
Chatbots are creating that kind of shift again right now... in another digital space.
Investors should pay close attention to the businesses that can pinpoint profitable chatbot ad spaces, optimize them, and maximize profits.
AppLovin is already positioned to do that. It knows how to garner user attention via mobile ads. And it knows how to turn those spaces into scalable revenue engines.
That makes it a clear beneficiary in the coming chatbot ad boom.
Regards,
Joel Litman
March 27, 2026
