A recurring theme at the recent PLUS D&O Symposium related to the risks associated with the rise of artificial intelligence (AI), risks that may among other things translate into D&O claims. Among other AI-related litigation concerns is the fear that companies seeking to catch some of the AI buzz will overstate their AI prospects. Last week, in the latest examples of the kinds of AI-related D&O claims that can arise, two companies were sued in separate securities lawsuits alleging that the companies overstated their AI capabilities or prospects – a phenomenon that has been described as “AI washing.”

AppLovin Corporation

The first of the two recent lawsuits involves AppLovin Corporation, a California-based company that provides a software-based platform for advertisers to use to enhance the marketing and monetization of their content. The recently filed securities lawsuit alleges that during from May 2023 to February 25, 2025, the company, in order to project financial growth and stability, made statements to investors concerning its launch of its AXON 2.0 digital ad platform and its use of “cutting-edge AI technologies” to match advertisements to mobile games and to allow its customers to expand into web-based marketing and e-commerce support financial growth. Throughout the period, the company reported impressive financial results, outlooks, and guidance.

On February 26, 2025, the company was the subject of short-seller reports suggesting that the company allegedly was using manipulative practices to artificially inflate its ad click-through and app download rates, such as by having ads click on themselves or utilizing design gimmicks to trigger forced shadow downloads, inflating installation numbers and profitability. The securities lawsuit complaint alleges that on this news the company’s share price declined.

On March 5, 2025, a plaintiff shareholder filed a securities class action lawsuit in the Northern District of California against the company and certain of its executives. The complaint purports to be filed on behalf of investors who purchased the company’s shares between May 10, 2023 and February 25, 2025.

The complaint alleges that during the class period the defendants “continually touted the new and improved AXON 2.0 platform and cutting-edge AI technologies as the main reason why the Company has seen exponential growth since 2022. In actuality, AppLovin used manipulative practices that forced unwanted apps on customers via a ‘backdoor installation scheme’ in order to erroneously inflate installation numbers, and in turn, profit numbers.”

The complaint alleges that the defendants violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint seeks to recover damages on behalf of the class.

Skyworks Solutions, Inc.

The second of the two recently filed lawsuits involves Skyworks Solutions. Skyworks develops and manufactures semiconductors for a broad range of applications, including aerospace, automotive, cellular infrastructure, as well as for smartphones, tablets, and wearables.

According to the subsequently filed securities complaint, during the period July 2024 to February 5, 2025, the company projected favorable growth in its smartphone segment and for the company as a whole, among other things, saying that it expected that the rise of AI would “ignite a transformative smartphone upgrade cycle,” and that the company was in the early stages of this “multi-year trend,” and that the company was “well-positioned to capitalize on it.”

However, on February 5, 2025, the company reported disappointing results for its fiscal first quarter and lowered its guidance for the second quarter, citing a “competitive landscape” that had “intensified.” According to the securities complaint, the company’s share price declined 24% on this news.

On March 4, 2025, a plaintiff shareholder filed a securities class action in the Central District of California against the company and certain of directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between July 30, 2024, and February 5, 2025.

The complaint alleges that the during the class period, the defendants made misrepresentations or failed to disclose that “its long-standing relationship with Apple, its largest customer, did not guarantee that Apple would maintain its business with Skyworks for its anticipated iPhone launch. Additionally, Defendants oversold Skyworks’ position and ability to capitalize on AI in the smartphone upgrade cycle.” The complaint alleges that the company’s statements “absent these material facts” caused investors to purchase the company’s securities at “artificially inflated prices.”

The complaint alleges that the defendants violated Sections 10(a) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.

Discussion

Over the last couple of years, investors have shown a willingness to pay a premium for the shares of companies that appear positioned to capitalize on rise of AI. The share prices of AI-connected companies have (at least until recently) soared. These financial market features create incentives for companies to try to portray themselves as poised to capitalize on the advent of AI. However, when projected AI benefits fail to materialize, company share prices decline, investors are disappointed, and, as these two new lawsuits demonstrate, securities class action lawsuits can follow.

In both of these new lawsuits, the defendant companies allegedly attempted to project themselves as being in a position to benefit from the rise of AI, allegedly setting investors up for later disappointment when reality fell short. The shareholder plaintiffs in both of these actions allege that the companies overstated their AI capabilities or prospects, in a demonstration of what has been called “AI-washing.”

According to the Stanford Law School Securities Class Action Clearinghouse (here), the filing of these two new lawsuits brings the total of AI-related securities suits to be filed so far this year to four, after 15 AI-related securities suits were filed in 2024. Most if not all of these lawsuits involve AI-washing type allegations, in that the lawsuits allege that the defendant companies overstated their AI capabilities or prospects.

The likelihood is that in the weeks and months ahead we will continue to see these kinds of AI-washing cases filed. Investor pressure on companies to show that they are positioned to profit from the advent of AI, and the resulting incentives for companies to make positive statements about their AI prospects, sets up companies whose results fall short of aspirations for investor disappointment and at least potentially for litigation. These kinds of lawsuits were a significant factor in the number of securities lawsuits that were filed last year, and they it seems like they will continue to be an important factor again this year.