Applied Digital Corporation APLD shares have plunged 23.5% over the past three months, underperforming the broader Finance sector’s growth of 4%.
This steep decline raises the question: Should investors cut their losses and exit, or is it worth holding on to? While the near-term headwinds are real, the long-term growth story for Applied Digital remains intact, making a strong case for holding the stock.
APLD Three-Month Price Performance
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Reason Behind Applied Digital’s Struggle
Applied Digital’s recent decline stems from the broader market weakness rather than any company-specific issue. The stock witnessed a massive sell-off in January after Chinese AI startup DeepSeek released a competitive AI model that requires lesser powerful hardware.
Investors drew the wrong conclusions that the demand for powerful hardware will not be like as previously forecasted. As Applied Digital’s data centers are specialized in providing computing services for AI applications, investors turned cautious about its growth prospects.
APLD’s recent decline has also stemmed from a widespread sell-off in tech stocks in February, triggered by fears of escalating trade tensions and slowing economic growth, which jolted the entire sector. Companies that have benefited most from the AI boom, like Applied Digital, are now experiencing valuation corrections.
APLD’s Valuation Looks Lofty
APLD stock is trading at a premium currently, as suggested by the Value Score of F. Despite its recent plunge in stock price, the company still trades at a high forward 12-month price-to-earnings (P/S) ratio compared to the industry.
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However, not everything is gloom and doom for Applied Digital.
APLD Grows on the Back of Traction in Data Center
Applied Digital’s data center segment, which provides energized infrastructure services to crypto mining customers, accounted for 83% of its total revenues in fiscal 2024, is benefiting from Bitcoin’s price surge that increased more than 23% in the past year, even hitting all time high of $103,332.30 on Dec. 4, 2024.
Applied Digital benefits from access to hundreds of MWs of low-cost energy and its expertise in building high-quality AI data centers. As AI models grow more complex, their rising power demands fuel APLD’s growth. Data center electricity consumption is expected to surge 125% by 2030, reaching 9% of total U.S. usage, giving APLD an upper hand in this market.
APLD is nearing completion of 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 369,000+ sq. ft. state-of-the-art facility is tailored for HPC applications, including AI.
The company is also in the design phase for two additional buildings at Ellendale, expanding total capacity to 400 MW.
APLD’s Data Center Hosting Business provides energized space for crypto mining customers. As of Nov. 30, 2024, its 106 MW Jamestown, ND facility and 180 MW Ellendale, ND facility were fully operational.
These factors are driving its top and bottom lines. The Zacks Consensus Estimate for its fiscal 2025 revenues is pegged at $526.57 million, indicating year-over-year growth of 111.2%. The Zacks Consensus Estimate for earnings is pegged at 64 cents per share, indicating year-over-year growth of 181%.
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
APLD Gains From Rich Partner Base
Applied Digital has a rich partner base that includes Super Micro Computer SMCI, Hewlett Packard Enterprise HPE and Dell Technologies, along with NVIDIA NVDA. Additionally, NVIDIA disclosed that it owns 7,716,050 shares in APLD, which was valued at $58.95 million as of Dec. 31, 2024.
APLD collaborated with Super Micro Computer for its high-performance server and storage solutions that support computationally intensive workloads. Super Micro Computer’s next-generation GPU servers are highly power-efficient, addressing the growing energy demands of large-scale AI models, helping Applied Digital to optimize its total cost of ownership for sustainable operations.
APLD partnered with Hewlett Packard Enterprise to leverage HPE Cray XD supercomputers, featuring NVIDIA H100 GPUs, to operate its large-scale AI services. Hewlett Packard Enterprise also enabled APLD to design and engineer its cloud infrastructure facilities.
Conclusion: Hold APLD Stock for Now
Although APLD stock price has declined sharply, the company is going to recover on the back of its robust data center business and strong partner base. Considering all these factors, we recommend that investors should retain this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
