Core Viewpoint - The market reaction to DeepSeek's AI chatbot announcement reflects a misunderstanding of the AI industry's technological and capital requirements, presenting potential investment opportunities for long-term investors [3][12]. Group 1: Market Reaction - DeepSeek's launch of a competitive chatbot led to a significant sell-off in Nvidia shares, which fell 17%, resulting in a loss of nearly $600 billion in market value, marking the largest single-day loss for any public company [1]. - The broader tech sector experienced a decline of approximately $1 trillion in value as investors feared reduced demand for premium chips in future AI developments [2]. Group 2: Investment Opportunities - SoundHound AI's shares dropped 11.2% following DeepSeek's announcement, creating an attractive entry point for investors due to its unique technology and business model that differs from large language models [5][6]. - Applied Digital's stock fell 27.7%, but the company is positioned to address the critical power needs of next-generation data centers, with projections indicating a 36GW power shortfall by 2028 [7][8]. - Taiwan Semiconductor Manufacturing Company (TSMC) saw a 13.3% decline in shares, yet it maintains a 65% market share in global foundry revenue and is essential for both AI development and broader semiconductor innovation [9][10][11]. Group 3: Long-term Perspectives - The current market pullback offers compelling entry points across various technology segments, focusing on companies that provide unique value to the AI ecosystem, such as SoundHound, Applied Digital, and TSMC [12][13].

Group 1: AI Market Overview - The AI revolution, initiated by ChatGPT in late 2022, has led to significant returns for early investors in companies like Nvidia, Microsoft, and Broadcom [1] - McKinsey & Co. estimates that generative AI could generate up to $4.4 trillion in annual value across 63 use cases, with potential to double when considering broader software integration [2] - The focus is shifting from initial AI stocks to a new generation of innovators in software and robotics [3] Group 2: Company Highlights - SoundHound AI is a leading player in the voice AI market, with technology supporting voice experiences in 25 languages and a backlog exceeding $1 billion [5] - SoundHound's revenue doubled year-over-year to $25.1 million in Q3 2024, with projected growth exceeding 90% [6] - Serve Robotics, spun off from Uber, has achieved a 99.94% reliability rate in deliveries and has raised $167 million in 2024 to scale its operations [7][8] - Serve Robotics aims to target delivery costs of $1 per trip in a market projected to reach $450 billion by 2030 [9] - Applied Digital is addressing the increasing power demands of AI, having secured up to 600 megawatts of power capacity in North Dakota [10][11] - Applied Digital raised $450 million through convertible notes and $160 million from investors, positioning itself to benefit from the projected 125% surge in data center power consumption by 2030 [11] Group 3: Future Outlook - The next wave of AI development will likely be driven by specialized companies like SoundHound, Serve Robotics, and Applied Digital, each addressing unique market needs [12] - These companies are well-positioned with proven technology, strong partnerships, and access to large addressable markets, presenting investment opportunities beyond established tech giants [12]

Core Viewpoint - Applied Digital Corporation (APLD) has shown significant growth in revenue and stock performance, driven by its expanding digital infrastructure for High-Performance Computing (HPC) and cloud services, despite concerns over its valuation and earnings estimates [1][21]. Financial Performance - In the second quarter of fiscal 2025, APLD's revenues increased by 51% year over year to $63.9 million, primarily due to strong Cloud Services contracts [2]. - The Cloud Services segment saw a remarkable 523% year-over-year revenue growth, reaching $27.7 million, while the Data Center Hosting segment generated $36.2 million [2]. - The consensus estimate for fiscal 2025 revenues is projected at $269.44 million, indicating a year-over-year growth of 62.73% [15]. Stock Performance - APLD shares have appreciated by 6.3% in the past week, outperforming the broader Finance sector's return of 1.3% [1]. - The stock is currently trading above both the 50-day and 200-day moving averages, indicating a bullish trend [5][6]. Data Center Expansion - APLD is expanding its data center capacity, with a 100 MW facility under construction at the Ellendale HPC campus, which is designed for HPC applications, including AI [8]. - The company is also in the design phase for two additional buildings, which will increase total capacity to 400 MW [8]. - The growing complexity of AI models is driving higher energy consumption, with data centers projected to consume 9% of all electricity in the U.S. by 2030 [7]. Partnerships and Collaborations - APLD has established partnerships with major companies such as NVIDIA, Super Micro Computer, Hewlett Packard, and Dell Technologies to enhance its service offerings [9][10]. - As part of its collaboration with Hewlett Packard, APLD is set to utilize powerful supercomputers to support large-scale AI through its cloud service [10]. Financial Position - As of November 30, 2024, APLD had cash and cash equivalents totaling $314.6 million, indicating an improving liquidity position [11]. - The company secured a $5 billion perpetual preferred equity financing deal with Macquarie Asset Management, with up to $900 million allocated for the Ellendale HPC data center campus [11]. Valuation Concerns - APLD's stock is considered overvalued, with a forward 12-month Price/Sales (P/S) ratio of 6.02X, significantly higher than its median of 2.63X and the industry's 2.71X [18]. - The Zacks Consensus Estimate for fiscal 2025 loss has widened to 80 cents per share, compared to a loss of 40 cents per share over the past 30 days [15].

Financial Performance - Applied Digital (APLD) reported a second-quarter fiscal 2025 loss of 66 cents per share, missing the Zacks Consensus Estimate of a loss of 14 cents, compared to a loss of 10 cents per share in the same quarter last year [1] - Non-GAAP loss was 6 cents per share, wider than the 5 cents per share reported in the year-ago quarter, after adjusting for various expenses [2] - Revenues reached $63.9 million, a 51% year-over-year increase, aligning with consensus estimates, with Cloud Services revenues surging 523% year over year to $27.7 million [3] Cost and Expenses - Cost of revenues increased by 76% year over year to $52.4 million due to more facilities being energized and additional services provided [7] - Selling, general and administrative expenses rose 46.8% year over year to $29.8 million [7] - Interest expense increased by 186% from the year-ago quarter to $4.9 million [8] Business Operations - APLD's HPC Data Center Hosting business is in late-stage discussions with multiple hyperscalers for a lease agreement for its 100 MW facility in Ellendale, ND, which is currently under construction [5] - The Data Center hosting business is fully operational at its 106 MW facility in Jamestown, ND, and 180 MW facility in Ellendale, ND [6] Market Reaction - Following the fiscal second-quarter results, APLD shares declined by 7%, although they have surged 54.4% over the trailing 12 months, outperforming the Zacks Finance sector's return of 21.1% [4] Balance Sheet and Financing - As of November 30, 2024, APLD had cash, cash equivalents, and restricted cash totaling $314.6 million against debt of $479.6 million [9] - APLD HPC Holdings LLC secured a $5 billion perpetual preferred equity financing deal with Macquarie Asset Management, with up to $900 million allocated for the Ellendale HPC data center campus [9] - The company completed a $450 million offering of 2.75% Convertible Senior Notes due 2030, with net proceeds of approximately $435.2 million [10][11]

Core Insights - The AI revolution is projected to significantly reshape the global economy, with generative AI potentially adding between $2.6 trillion and $4.4 trillion in annual value across various use cases [1] - Market valuations are reflecting this transformation, particularly for tech giants focused on AI, with Nvidia delivering over 2,000% returns to shareholders in five years [2] Company Summaries - **Applied Digital Corporation** is transforming high-performance computing with a $5 billion funding partnership aimed at expanding its digital infrastructure, including a $900 million investment for a 400-megawatt facility to meet AI processing demands [3][4] - **Serve Robotics Inc.** is innovating in autonomous delivery with a third-generation robotics platform powered by Nvidia, and plans to deploy 2,000 new units in partnership with Uber, positioning itself for significant market share [5][6] - **Oklo Inc.** is developing next-generation nuclear solutions to meet the energy demands of AI infrastructure, with a partnership to supply 12 gigawatts of clean power, supported by regulatory approvals and commercial partnerships [7][8] - **Alphabet Inc.** is enhancing its AI capabilities in retail through autonomous AI agents that improve product searches and customer interactions, leveraging partnerships with e-commerce platforms to extend its reach [9][10] - **Tesla Inc.** is pursuing a comprehensive AI strategy with investments in custom AI chips and robotics, creating competitive advantages through vertical integration and extensive real-world data [11][12] Industry Overview - The AI revolution represents a significant investment opportunity, with companies across the AI value chain offering exposure to core infrastructure, practical applications, and enabling technologies, making them attractive for investors [13]

Group 1 - The article emphasizes the importance of delivering alpha-generating investment ideas through a structured and evidence-based approach [1] - The investment strategy involves a generalist approach, analyzing and investing in various sectors with perceived alpha potential compared to the S&P 500 [1] - The typical holding period for investments ranges from a few quarters to multiple years, indicating a long-term investment strategy [1] Group 2 - The author has a beneficial long position in the shares of VOO, indicating confidence in this investment [2] - The article expresses the author's personal opinions and is not influenced by compensation from any company mentioned [2] - There is no business relationship with any company whose stock is discussed, ensuring an independent perspective [2]

Financial Data and Key Metrics - The company issued its financial results for the fiscal second quarter ended November 30, 2024, and a press release, which will be furnished in a report on Form 8-K filed with the SEC [1] Business Line Data and Key Metrics - No specific data or metrics related to individual business lines were provided in the content [1] Market Data and Key Metrics - No specific data or metrics related to individual markets were provided in the content [1] Company Strategy and Industry Competition - No specific details on company strategy, development direction, or industry competition were provided in the content [1] Management Commentary on Operating Environment and Future Outlook - The company cautioned that forward-looking statements made during the call involve risks and uncertainties, and actual results could differ materially from those described due to factors beyond the company's control [4][5] Other Important Information - The company reminded participants that forward-looking statements are subject to risks and uncertainties, and detailed disclosures can be found in the earnings release [4][5] Q&A Session Summary - No Q&A session details were provided in the content [1]

Group 1: Earnings Performance - Applied Digital Corporation reported a quarterly loss of $0.66 per share, significantly worse than the Zacks Consensus Estimate of a loss of $0.14, representing an earnings surprise of -371.43% [1] - The company posted revenues of $63.87 million for the quarter ended November 2024, exceeding the Zacks Consensus Estimate by 0.34% and up from $42.2 million year-over-year [2] - Over the last four quarters, the company has surpassed consensus revenue estimates three times [2] Group 2: Stock Performance and Outlook - Applied Digital Corporation shares have increased by approximately 1.6% since the beginning of the year, while the S&P 500 has declined by 0.8% [3] - The current consensus EPS estimate for the upcoming quarter is -$0.11 on revenues of $66.9 million, and for the current fiscal year, it is -$0.40 on revenues of $270.77 million [7] Group 3: Industry Context - The Financial - Miscellaneous Services industry, to which Applied Digital Corporation belongs, is currently ranked in the top 32% of over 250 Zacks industries, indicating a favorable outlook compared to lower-ranked industries [8]

Revenue and Cost Analysis - Revenue increased by $51.9 million (73%) from $70.7 million to $122.6 million for the six months ended November 30, 2024, driven by growth in the Cloud Services Business[208] - Cost of revenues increased by $58.4 million (106%) from $55.0 million to $113.4 million for the six months ended November 30, 2024, primarily due to business growth and increased service provision[210] - Selling, general and administrative expense increased by $7.7 million (21%) from $36.4 million to $44.1 million for the six months ended November 30, 2024, driven by overall business growth[211] Interest and Debt-Related Expenses - Interest expense, net increased by $10.0 million (211%) from $4.8 million to $14.8 million for the six months ended November 30, 2024, primarily due to increases in finance leases and debt obligations[217] - Loss on change in fair value of debt was $85.4 million for the six months ended November 30, 2024, primarily due to changes in the fair value of the conversion option derivative of the 2.75% Senior Unsecured Convertible Note[219] Business Segment Performance - Data Center Hosting Business operating profit increased by $28.5 million (143%) from $19.9 million to $48.4 million for the six months ended November 30, 2024, due to operational improvements and favorable power pricing[225] - Cloud Services Business operating loss increased by $2.7 million from $19.0 million to $21.6 million for the six months ended November 30, 2024, primarily due to amortization expense on finance leases and stock-based compensation[226] - HPC Hosting Business operating loss increased by $7.1 million from $1.7 million to $8.8 million for the six months ended November 30, 2024, largely due to legal expenses and stock-based compensation[227] Non-GAAP Measures and Adjustments - Adjusted Operating Loss and Adjusted net loss attributable to Applied Digital Corporation are non-GAAP measures excluding stock-based compensation, non-recurring expenses, and other items not representative of ongoing costs[231] Capital Raising and Financing Activities - Company issued and sold approximately 2.9 million shares under the Sales Agreement for net proceeds of $16.4 million, net of issuance costs of $0.5 million[176] - Company completed a private offering of $450 million in 2.75% Senior Unsecured Convertible Notes due 2030, with net proceeds of approximately $435.2 million[168][249] - Company entered into a $150 million Macquarie Promissory Note with an 18-month term and 0.25% annual interest rate[171][250] - Company closed on three offerings of Series E Preferred Stock, selling 301,673 shares for net proceeds of $6.9 million[242][180] - Company entered into a $50.0 million Series F Convertible Preferred Stock private placement, with proceeds of $50.0 million before fees[246][181] - Company completed a private placement of 49,382,720 shares of common stock for gross proceeds of approximately $160 million[247] - Company entered into a Standby Equity Purchase Agreement (SEPA) with YA Fund, allowing the sale of up to $250.0 million of common stock over a 36-month period[178][245] Debt Repayment and Asset Sales - Company repaid the CIM Promissory Note in full, including all outstanding principal, accrued interest, fees, and expenses, using proceeds from the Macquarie Promissory Note[164][250] - Gain on classification of held for sale was $24.6 million for the six months ended November 30, 2024, primarily due to the receipt of $25.0 million from the sale of the Garden City facility[214] - Company received $25 million in escrowed funds from the sale of the Garden City hosting facility[177] Future Service Payments - Company received $28.3 million in payments for future cloud services and $59.2 million in payments for future data center hosting services during the six months ended November 30, 2024[252] Stock Conversions - 10,191 shares of Series F Convertible Preferred Stock were converted into approximately 1.5 million shares of common stock during the three months ended November 30, 2024[186] - The remaining 43,000 shares of Series F Convertible Preferred Stock were converted into approximately 6.1 million shares of common stock subsequent to the quarter ended November 30, 2024[186]

Revenue Growth - Revenues for the fiscal second quarter 2025 were $63.9 million, up 51% from the prior year period[5] - Cloud Services Business generated $27.7 million in revenues, representing a 523% increase compared to the same period in 2023[8] - Data Center Hosting Business generated $36.2 million in revenue, with facilities operating at full capacity[11] - Total revenue for the six months ended November 30, 2024 was $124.572 million, compared to $78.527 million for the same period in 2023[36] Net Loss and Financial Performance - Net loss for the fiscal second quarter 2025 was $138.7 million, impacted by $87.2 million from the loss on change in fair value of debt and $25.4 million from the loss on conversion of debt[5] - Net loss attributable to common stockholders for the six months ended November 30, 2024 was $143.646 million, compared to $21.986 million for the same period in 2023[36] - Basic and diluted net loss per share attributable to common stockholders for the six months ended November 30, 2024 was $0.80, compared to $0.21 for the same period in 2023[36] - Net loss for the six months ended November 30, 2024, was $142,973 thousand, compared to $22,383 thousand in the same period last year[37] - Adjusted net loss attributable to Applied Digital Corporation for the six months ended November 30, 2024, was $34,197 thousand, compared to $5,083 thousand in the same period last year[40] Adjusted EBITDA and Operating Metrics - Adjusted EBITDA for the fiscal second quarter 2025 was $21.4 million, up 93% from the prior year period[5] - Adjusted Operating Loss excludes stock-based compensation, non-recurring repair expenses, and other non-recurring expenses[30] - Adjusted EBITDA is defined as EBITDA adjusted for stock-based compensation, non-recurring repair expenses, and other non-recurring expenses[31] - Adjusted operating loss for the six months ended November 30, 2024, was $19,406 thousand, compared to $730 thousand in the same period last year[40] - Adjusted EBITDA for the six months ended November 30, 2024, was $41,355 thousand, compared to $20,950 thousand in the same period last year[42] Financing and Capital Structure - Applied Digital entered into a $5.0 billion perpetual preferred equity financing facility with Macquarie Asset Management for its HPC business[5] - The Company completed a $450 million offering of 2.75% Convertible Senior Notes due 2030, with net proceeds of approximately $435.2 million[7] - As of November 30, 2024, the Company had $314.6 million in cash, cash equivalents, and restricted cash, along with $479.6 million in debt[20] - Cash and cash equivalents increased significantly from $3.339 million as of May 31, 2024 to $286.237 million as of November 30, 2024[34] - Cash flow from financing activities was $618,584 thousand for the six months ended November 30, 2024, compared to $47,611 thousand in the same period last year[37] Asset and Liability Changes - Total assets increased from $762.867 million as of May 31, 2024 to $1,543.169 million as of November 30, 2024[34] - Property and equipment, net increased from $340.381 million as of May 31, 2024 to $772.664 million as of November 30, 2024[34] - Total liabilities increased from $638.037 million as of May 31, 2024 to $1,052.815 million as of November 30, 2024[34] Cash Flow and Investment Activities - Cash flow from operating activities was negative $128,154 thousand for the six months ended November 30, 2024, compared to positive $9,054 thousand in the same period last year[37] - Cash flow used in investing activities increased to $207,539 thousand for the six months ended November 30, 2024, from $65,606 thousand in the same period last year[37] Non-GAAP Measures and Adjustments - The company updated its presentation of non-GAAP measures starting in the third quarter of 2024, no longer excluding start-up costs[29] - The company incurred $11,667 thousand in diligence, acquisition, disposition, and integration expenses for the six months ended November 30, 2024[40] - The company reported a loss on conversion of debt of $33,612 thousand for the six months ended November 30, 2024[40] - The company reported a loss on change in fair value of debt of $85,439 thousand for the six months ended November 30, 2024[40] Data Center and HPC Developments - Applied Digital is in late-stage discussions to finalize a lease agreement for its 100 MW facility and plans to bring an additional 300 MW online, increasing Ellendale's total HPC capacity to 400 MW[10] - The Company successfully energized the on-site main substation transformer at the Ellendale HPC data center, marking a significant milestone in its development[7]