Applied Digital (APLD) experienced a decline of 4.35% on July 29, with a trading volume reaching $230 million, positioning it at 476th in the market. The stock continues to showcase significant volatility, reflective of the unpredictable landscape within the AI infrastructure sector. Investors are focusing on the company’s strategic shift from cryptocurrency hosting to AI-driven data centers, which is intended to secure long-term growth.
A pivotal element in this transition is APLD’s ambitious 15-year, $7 billion lease contract with CoreWeave, which is poised to establish the company as a crucial player in the AI ecosystem, effectively transforming it into a “GPU factory” for high-performance computing. The development of the Ellendale campus in North Dakota features advanced infrastructure optimized for AI workloads, benefiting from innovations like liquid cooling and stranded power access. This strategic pivot is anticipated to yield projected savings of $2.7 billion over the next 30 years, aligning APLD with the rapidly expanding AI infrastructure market, which is expected to reach $500 billion and grow at a remarkable rate of 26.6% annually through 2034.
However, market analysts exhibit differing views on APLD’s valuation metrics. The stock is trading at an 11.6x price-to-sales ratio, which is notably above industry averages. Concerns linger regarding its lack of profitability and high leverage, which stands at 42.8x net debt-to-EBITDA, presenting potential execution risks in executing their strategic vision. The company has secured a $5 billion perpetual preferred equity deal with Macquarie and possesses $375 million in liquidity, providing a buffer for near-term stability. Still, delays in multi-phase deployment or slower-than-expected AI adoption may weigh on market sentiment going forward.
The upcoming Q4 earnings report on July 30 will be critical for the company’s outlook. Analysts predict a loss of $0.16 per share and revenue of approximately $37.94 million. Notably, there is a silver lining: the Cloud Services segment has experienced explosive growth of 220% year-over-year in Q3, and the anticipated activation of the Ellendale campus is on schedule. Analysts have set an average price target of $14.61 for APLD, indicating a potential upside of 38%, although estimates from GuruFocus suggest a risk of a 7.4% downside.
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