Applied Digital Corporation APLD shares have appreciated 6.3% in the past week, outperforming the broader Finance sector’s return of 1.3%.
This builder and operator of next-generation digital infrastructure designed for High-Performance Computing (HPC) applications, cloud services, and data center hosting has been benefiting from strong top-line growth.
In its recently concluded second-quarter fiscal 2025, revenues jumped 51% year over year to $63.9 million, driven by strong contributions from Cloud Services contracts. The company currently has six clusters online.
Cloud Services business revenues jumped 523% year over year to $27.7 million, driven by the deployment of additional GPU clusters. The Data Center Hosting business segment generated $36.2 million in revenues.
APLD Stock’s Performance
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Applied Digital shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
APLD Trades Above 50-Day and 200-Day SMA
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Expanding Data Center Capacity to Aid APLD’s Growth
The growing complexity and power requirement of AI models due to the significant rise in the number of parameters are driving higher energy consumption. Data centers’ electricity consumption is projected to grow 125% by 2030, using 9% of all electricity in the United States. APLD’s access to 100s of MWs of affordable energy and its ability to construct quality AI data centers are driving its prospects.
Applied Digital is on track to finalize the lease agreement with a U.S.-based hyperscaler for its 100 MW facility at the Ellendale HPC campus, which is currently under construction. This state-of-the-art, more than 369,000-square-foot facility is specifically designed for HPC applications, including AI.
APLD is in the design phase for two additional buildings at this location, increasing the total capacity to 400 MW.
Its Data Center Hosting Business operates data centers to provide energized space to crypto mining customers. As of Nov. 30, 2024, Applied Digital’s 106 MW facility in Jamestown, ND, and 180 MW facility in Ellendale, ND, were operating at full capacity.
APLD has a rich partner base that includes NVIDIA NVDA, Super Micro Computer, Hewlett Packard HPE and Dell Technologies DELL.
As part of Applied Digital’s partnership with Hewlett Packard, the latter provides powerful and energy-efficient supercomputers to support large-scale AI through APLD’s cloud service. It has supply agreements with Dell for the delivery of AI and GPU servers.
Improving Balance Sheet Bodes Well for APLD Prospects
APLD’s prospects benefit from an improving liquidity position. As of Nov. 30, 2024, it had cash, cash equivalents and restricted cash of $314.6 million.
APLD’s division, APLD HPC Holdings LLC, inked a deal with investment vehicles of funds managed by Macquarie Asset Management (MAM) for $5 billion perpetual preferred equity financing. Funds managed by MAM will invest up to $900 million in Applied Digital’s Ellendale HPC data center campus.
Applied Digital completed a $450 million offering of 2.75% Convertible Senior Notes due 2030, including $75 million from an option exercised by initial purchasers.
APLD’s Earnings Estimates Show Downward Trend
The Zacks Consensus Estimate for fiscal 2025 loss is pegged at 80 cents per share, which has widened from a loss of 40 cents per share over the past 30 days but is narrower than the loss of $1.31 per share reported in fiscal 2024.
The consensus mark for revenues is pegged at $269.44 million, indicating year-over-year growth of 62.73%.
The Zacks Consensus Estimate for third-quarter fiscal 2025 revenues is pegged at $66.68 million, indicating year-over-year growth of 53.81%.
The consensus mark for loss is pegged at 10 cents per share, which has narrowed over the past 30 days. APLD reported a loss of 52 cents per share in the year-ago quarter.
Applied Digital Corporation Price and Consensus
Applied Digital Corporation price-consensus-chart | Applied Digital Corporation Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
APLD Shares Are Overvalued
We point out that Applied Digital stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales (P/S) ratio, APLD is trading at 6.02X, higher than its median of 2.63X and the industry’s 2.71X.
Price/Sales Ratio (F12M)
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What Should Investors Do With APLD Shares?
Applied Digital’s expanding data center capacity bodes well for its prospects. Hence, investors who already own the stock may expect the company’s growth prospects to be rewarding over the long term.
However, the company’s stretched valuation is a concern for investors. Higher expenses related to data center leases for APLD’s cloud business that is yet to GPU clusters and generate any revenue is a headwind.
Applied Digital currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a better entry point to accumulate the stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Applied Digital Corporation (APLD) : Free Stock Analysis Report