Applied Digital (US:APLD) ZACKSยท2025-07-29 13:36Core Insights - Applied Digital (APLD) has transitioned from a crypto-focused business model to an AI-centric infrastructure, supported by a significant 15-year, $7 billion lease agreement with CoreWeave, reinforcing its "AI factory" concept [1][11] - The company has established purpose-built data centers, particularly the 250MW+ Ellendale site, positioning itself as a unique physical asset in the cloud-native AI sector [1] - APLD's Cloud Services revenues increased by nearly 220% year-over-year in Q3 of fiscal 2025, although there was a sequential decline due to challenges in adopting a multi-tenant GPU model [2][11] - The use of low-cost energy and free cooling at the Polaris Forge campus could result in $2.7 billion in cost savings, which is crucial for a capital expenditure-heavy model [2] Financial Performance - Legacy crypto hosting generated nearly $35 million in revenues during Q3, providing a stable revenue stream as AI offerings develop [3] - APLD's operational efficiency is improving, with adjusted EBITDA becoming positive and net losses decreasing [3] - The company has strong institutional support, holding $261 million in cash and $689 million in debt, along with a $5 billion commitment from Macquarie for buildout [3] Risks and Challenges - APLD's reliance on CoreWeave introduces concentration risk, especially after CoreWeave exited its equity stake, although warrant-based agreements indicate ongoing strategic alignment [4] - Execution is critical for APLD to capitalize on its infrastructure investments and deliver expected returns [5] Market Position and Valuation - APLD's stock has increased by 38.5% year-to-date, outperforming the industry average gain of 8.1% [10] - The company trades at a forward price-to-sales ratio of 8.48X, significantly above the industry average and its three-year median of 1.71X, indicating a premium valuation [12] - The Zacks Consensus Estimate predicts a 67.2% year-over-year increase in APLD's fiscal 2026 earnings [13]