Applied Digital Rises 6% in a Week: Buy, Sell, or Hold the Stock?

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].