AI infrastructure is a huge part of the market, and several companies are making a fortune from it right now. One of those is Applied Digital (APLD +4.92%), which recently reported blowout earnings.
Applied Digital is also set up to make money from this trend over the long term, but is it worth an investment right now? Let’s take a look.
Image source: Getty Images.
Applied Digital is more of a real estate investment
Although Applied Digital isn’t technically a real estate investment trust, I think it’s helpful to think of it as such. Applied Digital’s model is to design and build data centers, then rent its capacity to other clients. One of Applied Digital’s largest clients is CoreWeave, which is a neocloud company that then rents its services out to companies like Meta Platforms.
While there are several links in this chain, each one is a business that’s focused on a different aspect of bringing AI computing to the masses.
Applied Digital is actively working on several data centers that will be dedicated to AI. In its most recent quarter, it broke ground on Delta Forge 1, a 430-megawatt data center. Currently, it only has a single, 100-megawatt facility running, but that only represents about a sixth of contracted capacity. As a result, there will be massive growth ahead for Applied Digital.
Today’s Change
(4.92%) $1.48
Current Price
$31.57
Key Data Points
Market Cap
$9.0B
Day’s Range
$30.25 – $31.72
52wk Range
$3.81 – $42.27
Volume
643K
Avg Vol
24M
Gross Margin
27.07%
Still, it’s generating rapid growth right now, with revenue rising 139% year over year to $127 million during its latest quarter. That sounds incredible, but there is an issue that investors must watch out for: debt.
Applied Digital is operating on an old Field of Dreams quote: “If you build it, they will come.” To do that, Applied Digital needs a ton of capital to build out data center capacity, which will then be scooped up by an AI hyperscaler because that client base is eager to gain access to as much AI computing power as possible.
In its latest quarter, Applied Digital completed a $2.15 billion capital raise with a 6.75% rate. That’s not a sweetheart deal by any imagination, and shows the heightened risk that comes with this investment. Still, it could pay off massively in the end. Applied Digital can land solid tenants that provide reliable cash flows due to running sustainable AI workloads.
APLD Total Long Term Debt (Quarterly) data by YCharts.
We’ll see how all this pans out, but there is a risk with debt here. Still, if the AI buildout goes as expected, Applied Digital could be a major winner. The stock recently was down more than 30% from its all-time high, but is rapidly rebounding after reporting a successful quarter. As a result, Applied Digital may be a smart stock to take a small position in, just in case it takes off.
