AppLovin (NASDAQ:APP), the best-performing tech stock of 2024, just got hit with a reality check. Shares plunged 20% on Thursdayits biggest single-day drop everafter Muddy Waters became the third short-seller in a month to accuse the company of crossing serious ethical and legal lines. The report claims AppLovin is siphoning user data from platforms like Meta, Google, and TikTok without consent, all through its AI-powered AXON software. It's the kind of accusation that, if true, could spark regulatory blowbackand undo a rally that added over $110 billion in market value last year.

• Warning! GuruFocus has detected 3 Warning Sign with APP.

Muddy Waters isn't pulling punches. The firm says 23% of AppLovin's e-commerce clients have already walked away, based on a forensic analysis of its tracking tech. That directly contradicts CEO Adam Foroughi's claim that customer churn is a non-issue. Meanwhile, earlier reports from Fuzzy Panda, Culper Research, and The Bear Cave paint a picture of a company propped up by misleading AI claims and aggressive, possibly deceptive, ad tactics. Foroughi has called the reports false and self-serving, suggesting short-sellers are targeting AppLovin after its blowout earnings when the company couldn't respond with fresh financials.

Despite the drama, analysts aren't all backing off. The stock still has 21 buy ratings and just one sell, with big-name firms like Citi and Bank of America calling the drop a buying opportunity. But after Thursday's brutal selloff, it's now up nearly 10% in the premarket trading today. Now investors are facing a stark choice: double down on the AI-fueled growth storyor get out before the narrative unravels completely.