Applied Digital Stock Outshines Market with Impressive Gains

Applied Digital Corporation (APLD) shares have climbed 6.3% over the past week, surpassing the broader Finance sector’s growth of 1.3%. This performance reflects robust growth in the company’s financials.

The firm builds and operates next-generation digital infrastructure tailored for High-Performance Computing (HPC) applications, cloud services, and data center hosting, leading to significant revenue growth.

Strong Q2 Results Show Revenue Surges

In its recently completed second quarter of fiscal 2025, Applied Digital reported a remarkable 51% increase in revenue year-over-year, totaling $63.9 million. This growth was primarily fueled by a surge in Cloud Services contracts, with the company currently operating six clusters online.

Remarkably, revenues from the Cloud Services business skyrocketed by 523% year over year to reach $27.7 million, largely due to the rollout of additional GPU clusters. The Data Center Hosting segment contributed $36.2 million to the total revenue.

APLD’s Trading Indicators Signal Positive Momentum

Applied Digital shares are currently trading above both the 50-day and 200-day moving averages, suggesting a bullish trend in the stock’s performance.

APLD Readies for Further Expansion

Growing demands for AI models, driven by an increase in the number of parameters, are resulting in higher energy usage. Data centers are projected to increase their electricity consumption by 125% by 2030, with an anticipated 9% of all U.S. electricity usage. APLD’s access to affordable energy and its capability to build advanced AI data centers strengthens its growth prospects.

The company is finalizing a lease agreement with a U.S.-based hyperscaler for its 100 MW facility at the Ellendale HPC campus, which is currently under construction. This facility exceeds 369,000 square feet and is tailored for HPC applications, particularly AI.

Additionally, APLD is in the design phase for two more buildings at this site, planning to boost total capacity to 400 MW. Its data center hosting operations cater to crypto mining clients, with its 106 MW facility in Jamestown, ND, and 180 MW facility in Ellendale, ND, functioning at full capacity as of November 30, 2024.

Collaborations with major partners like NVIDIA (NVDA), Super Micro Computer, Hewlett Packard (HPE), and Dell Technologies (DELL) fortify APLD’s business. Notably, HPE provides robust, energy-efficient supercomputers to enhance AI scalability through APLD’s cloud services, essentially anchored by agreements with Dell for AI and GPU servers.

Improving Financial Position Supports Future Growth

APLD enjoys a stronger liquidity position, boasting cash, cash equivalents, and restricted cash totaling $314.6 million as of November 30, 2024.

Furthermore, APLD’s subsidiary, APLD HPC Holdings LLC, secured $5 billion in perpetual preferred equity financing from investment vehicles managed by Macquarie Asset Management (MAM). MAM will invest up to $900 million in Applied Digital’s Ellendale HPC data center campus.

Additionally, the company completed a $450 million offering of 2.75% Convertible Senior Notes due 2030, which includes $75 million from an option exercised by initial purchasers.

Mixed Earnings Estimates Signal Caution

The Zacks Consensus Estimate for a loss per share in fiscal 2025 is currently set at 80 cents, widening from a previous estimate of a 40-cent loss over the last month but still narrowing from a reported loss of $1.31 per share in fiscal 2024.

Projected revenues are estimated to reach $269.44 million, indicating impressive year-over-year growth of 62.73%. The third-quarter fiscal 2025 revenue consensus is set at $66.68 million, representing growth of 53.81% year-over-year, while the projected loss is set at 10 cents per share, which is an improvement from a loss of 52 cents per share in the same quarter last year.

Current Price and Consensus for APLD

Applied Digital Corporation price-consensus chart | Applied Digital Corporation Quote

To discover the latest EPS estimates and surprises, visit the Zacks Earnings Calendar.

APLD Valuation Raises Red Flags

Despite its growth, APLD’s stock appears pricey, reflected in a Value Score of F, indicating a potentially stretched valuation.

The forward Price/Sales (P/S) ratio stands at 6.02X, significantly higher than its median of 2.63X and the industry average of 2.71X.

Analyzing Price/Sales Ratio (F12M)

Image Source: Zacks Investment Research

Investment Outlook for APLD Shares

The expansion of Applied Digital’s data center capacity signals promising prospects. Investors who already hold shares might find growth rewarding in the long term.

Conversely, concerns around the company’s high valuation are valid. Increased expenses linked to data center leases for APLD’s cloud business, which is still ramping up revenue from GPU clusters, pose challenges.

Currently, Applied Digital holds a Zacks Rank #3 (Hold), suggesting that potential investors should wait for a more favorable entry point before acquiring shares.

You can view the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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