Applied Digital Stock Has Been Volatile, but the Long-Term Setup Looks Compelling

Core Viewpoint - Applied Digital is experiencing significant growth and has strong long-term prospects, making it an attractive option for growth investors [1] Company Overview - Applied Digital has seen its stock price increase nearly 300% over the past year, although it has experienced volatility recently [1][2] - The company operates in the data center industry, which is rapidly growing due to the increasing demand for artificial intelligence (AI) workloads [5] Financial Performance - In its fiscal second quarter, Applied Digital reported a net loss of $19 million, which is an improvement compared to the previous year [2] - The company has a market capitalization of $9.7 billion and is currently trading at $34.74 [6] Growth Potential - The demand for AI-specific workloads in data centers is projected to increase by 3.5 times from 2025 to 2030, indicating robust future demand for Applied Digital's services [5][7] - Applied Digital has already leased out 600 megawatts (MW) of data center capacity and anticipates potential lease revenue of $16 billion over the next 15 years [8][9] Construction and Capacity Expansion - The company has invested over $1 billion in its first 100 MW data center and plans to spend more than $6 billion on the construction of the 600 MW capacity [9][10] - Applied Digital aims to increase its overall data center capacity to 5 gigawatts (GW) in the next five years and has secured land or agreements for 4.3 GW of capacity [11] Market Dynamics - The stock is currently trading at a high valuation of 33 times sales, but this is justified by its growth trajectory [12] - According to Goldman Sachs, data center demand is expected to exceed supply by 10 GW on average over the next three years, positioning Applied Digital favorably for future contracts [14] Revenue Generation - The company expects to generate $25 million in lease revenue per MW from the 600 MW of capacity already leased, while construction costs range from $11 million to $13 million per MW [15] - Applied Digital's business model allows it to benefit from both the construction and operation of data centers, enhancing its revenue potential [7][10]