Applied Digital, AppLovin, and Reddit have plenty of upside potential.Many investors might be wary of buying the hottest growth stocks as the market hovers just a few percentage points below its all-time highs. The threats of higher tariffs, rising inflation, and elevated interest rates could also cap their near-term gains.But if we dig a bit deeper, we'll notice plenty of high-growth stocks still trading at reasonable valuations. I believe these three stocks -- Applied Digital (APLD 0.58%), AppLovin (APP - ...

Core Insights - Applied Digital's stock experienced a significant decline of 24.3% in a week, reflecting broader bearish trends in the AI sector and macroeconomic concerns [1][2][5] Company Performance - The company's share price fell sharply following Nvidia's earnings report, which led to a sell-off in AI stocks despite Nvidia's strong quarterly results [1][5] - Applied Digital is closely tied to Nvidia, as it is one of the few companies in which Nvidia has direct investments, resulting in correlated stock movements [4] Macroeconomic Factors - Recent indicators of inflation and macroeconomic health have been worse than expected, contributing to investor anxiety and selling pressure on AI stocks [2] - The Trump administration's plans to introduce new tariffs on Canada and Mexico, along with potential export restrictions on AI chips to China, have raised concerns about increased hardware costs for Applied Digital [3]

Core Viewpoint - Applied Digital's stock is experiencing significant sell-off pressure, primarily due to broader market concerns regarding growth-dependent AI stocks and macroeconomic risks [1][2]. Group 1: Stock Performance - Applied Digital's share price fell by 10.8% as of 3 p.m. ET, having previously dropped as much as 18% during the trading session [1]. - The stock has declined over 10% in the last month, with a current market capitalization of approximately $1.8 billion, translating to a valuation of about 7 times this year's expected sales [5]. Group 2: Market Sentiment and Influences - Traders are selling off AI stocks as they focus on emerging macroeconomic risks, leading to a weakening bullish sentiment ahead of Nvidia's fourth-quarter report [2]. - Concerns are heightened by the Trump administration's plans to impose new tariffs on Canada and Mexico, which may exacerbate inflation fears and impact the tech sector [3]. Group 3: Nvidia's Impact - Nvidia's upcoming earnings report is critical for Applied Digital, as it is a significant investor in the company and a bellwether for the data center market and AI demand [4]. - There are worries that Nvidia may provide softer-than-expected guidance, particularly in light of reports suggesting Microsoft might be moderating its data center expansion strategy [6]. Group 4: Growth Metrics - Despite the recent pullback, Applied Digital's stock is still up by 99% over the past year, with a year-over-year sales growth of 51% reported last quarter, indicating a potential valuation premium [5][6].

Core Viewpoint - Applied Digital's stock experienced a significant decline of 15.3% amid broader market movements and specific concerns regarding the AI sector and data center spending [1][2][4]. Group 1: Stock Performance - Applied Digital's share price fell by 15.3% during Monday's trading session, contrasting with the S&P 500's decline of 0.5% and the Nasdaq Composite's drop of 1.2% [1]. - The stock faced substantial sell-offs as investors reduced their positions in AI stocks ahead of Nvidia's fourth-quarter earnings release [2][3]. Group 2: Market Influences - Concerns about Nvidia's upcoming earnings report and Microsoft's potential cutbacks in data center spending contributed to the stock's decline [2][4]. - Microsoft CEO Satya Nadella expressed skepticism about the actual value generated by AI compared to the hype, which further pressured Applied Digital's stock [4]. Group 3: Future Outlook - The upcoming Nvidia earnings report is expected to significantly influence Applied Digital's stock valuation, with potential for large movements depending on Nvidia's guidance [5][6]. - If Nvidia's guidance exceeds expectations, Applied Digital's shares could rise sharply; however, there is considerable downside risk if the outlook falls short of Wall Street forecasts [6].

Core Insights - Applied Digital's stock has experienced significant gains, with a rise of 12.7% as of 10:15 a.m. ET, peaking at 17.3% earlier in the trading session [1] - Nvidia's recent SEC disclosure revealed that it still holds approximately 7.7 million shares of Applied Digital, indicating strong confidence in the company despite selling off other AI-related investments [2][3] - Applied Digital secured $375 million from Sumitomo Mitsui Banking Corporation for its North Dakota data center, enhancing its capacity for AI computation services [5] - The company reported a non-GAAP loss per share of $0.06 and revenue of $63.87 million, reflecting a year-over-year increase of about 51%, outperforming Wall Street expectations [6] Company Developments - Nvidia's decision to maintain its investment in Applied Digital, while divesting from other AI holdings, suggests a belief in the company's superior prospects [4] - The funding for the North Dakota data center is a strategic move to expand Applied Digital's data center footprint and improve service offerings [5] - The strong revenue growth and continued support from Nvidia position Applied Digital favorably for future opportunities [6]

Core Viewpoint - Applied Digital Corporation has successfully closed a $375 million financing deal with SMBC to support the development of its Ellendale High Performance Computing (HPC) Campus and to repay existing obligations [1][2][7] Financing Details - The financing amount is $375 million, which will be used to repay obligations under a senior secured note and to advance the development of the first and second data center buildings at the Ellendale HPC Campus [1][2] - The company plans to replace the interim SMBC loan with permanent project financing, which is not expected to be dilutive to the company's common stock [2] Strategic Partnerships - The partnership with SMBC is seen as a validation of the Ellendale HPC Campus and is expected to strengthen as the company scales its HPC data center platform [2][7] - Northland Capital Markets acted as the Capital Markets Advisor for the financing, while Milbank LLP and Lowenstein Sandler LLP provided legal counsel to the company [3] Company Overview - Applied Digital specializes in developing, building, and operating next-generation data centers and cloud infrastructure, focusing on high-performance computing (HPC) applications [4] - The company’s facilities are designed to support AI, machine learning, blockchain, and other demanding workloads, leveraging its expertise in hyperscale operations [4]

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]