Digital infrastructure firm Applied Digital (APLD) is generating buzz among investors. After securing significant access to capital, the company is well-positioned, in an already booming industry, to continue building its data center capabilities to support high-performance computing (HPC) like blockchain, artificial intelligence, and cloud computing.
The stock has risen 146% in the past three months, and potential catalysts, such as swirling rumors of the company being a promising buyout candidate, could unlock further upside. It is a high-risk, high-reward opportunity appropriate for investors ready for a rollercoaster ride.
Applied Digital Poised For Growth
Applied Digital provides solutions for building and operating data centers across North America that maximize efficiency for High-Performance Computing (HPC) needs. The company’s services extend to three key business segments: blockchain colocation services, HPC data center colocation services, and GPU cloud services under the Sai Computing banner.
The High-Performance Computing industry is poised for significant growth. Estimates suggest growth from $50 billion in 2023 to roughly $92 billion by 2030, representing a compound annual growth rate (CAGR) of 9.1%.
Applied Digital’s Recent Financial Results & Outlook
Applied Digital reported Q3 FY 2024 results, missing top-and-bottom-line expectations. Revenue of $43.35 million fell short of the anticipated $51.92 million. However, total revenues did show growth, with an increase of 208% from Q3 2023. The cause of this growth could be attributed to the expansion of capacity in the company’s data centers and the introduction of its Cloud Services segment.
In terms of expenditure, the cost of revenues rose from $10.5 million in Q3 2023 to $47.1 million in Q3 2024. The net loss for Q3 2024 was significantly higher than Q3 2023, with a loss of $62.8 million compared to the previous year’s loss of $7.3 million. Adjusted EBITDA and adjusted net loss were also negatively impacted due to expenses relating to facilities not yet generating revenue. Earnings per share (EPS) of -$0.24 fell short of consensus expectations of -$0.10.
The company ended the quarter with $41.0 million in cash, cash equivalents, and restricted cash while carrying $61.8 million in debt. The company secured an initial commitment of $125 million to fund the construction costs of its hundred-megawatt HPC data center in Ellendale and entered into a private financing agreement involving an unsecured convertible debenture. It also issued a sales agreement offering shares of its common stock up to $125 million.
Despite Q3 setbacks, the company anticipates its Q4 revenue to be between $41.7 million and $43.7 million, with Adjusted EBITDA estimated between $2.8 million and $4.8 million.
What Is the Price Target for APLD Stock?
The stock is highly volatile, sporting a beta of 2.80, and has been relatively range-bound the past year, taking a positive upturn in the last 90 days. It trades in the middle of its 52-week price range of $2.36 – $11.07 and demonstrates positive price momentum by trading above the 20-day (5.86) and 50-day (5.10) moving averages. The stock appears richly valued with a P/S ratio of 4.59x, compared to the Information Technology Services industry average of 2.05x.
Analysts following the company have been bullish on the stock. For example, Roth MKM analyst Darren Aftahi recently raised the price target from $8 to $11 while keeping a Buy rating on the shares. He noted the company remains an overlooked and underappreciated story, with more large-scale power assets from earlier entry to this space than many of its bitcoin miner peers.
Applied Digital is rated a Strong Buy overall, based on the aggregate recommendations and price targets recently issued by six analysts. The average price target for APLD stock is $9.50, representing a potential upside of 53.23% from current levels.
Final Analysis on APLD
Applied Digital is worth a closer look for investors seeking exposure to the digital infrastructure space. While recent financial results may have fallen short of expectations, the company’s ongoing expansion and strategic moves hint at brighter horizons. Its commitment to building out robust data center capabilities is accompanied by unlocking potential catalysts, including potential buyout rumors, which have helped fuel its impressive stock rise over the past three months.
The HPC industry’s projected growth further supports Applied Digital’s potential long-term gains. Despite the high-risk profile, the stock’s positive momentum points to a favorable trajectory for APLD.
