Applied Digital Corporation (APLD) presents a compelling, albeit speculative, investment opportunity within the burgeoning high-performance computing (HPC) landscape. While the company exhibits several hallmarks of a disruptive player – strategic positioning within a high-growth segment, innovative technological capabilities, and a landmark contract with a key industry participant – material operational and financial risks temper our near-term enthusiasm. We initiate coverage with a Hold recommendation and a 12-month price target of $6.00, reflecting a balanced assessment of APLD’s potential and the considerable challenges it faces. This price target represents a 2.8x EV/Sales multiple on our FY2025 revenue projection of $526 million, a 30% discount to the peer group average, accounting for the company’s elevated risk profile.
Industry Overview
The global data centre infrastructure market is experiencing robust secular growth, driven by the proliferation of data-intensive technologies, cloud adoption, and the accelerating deployment of artificial intelligence (AI). Market projections indicate a total addressable market (TAM) of $340 billion by 2026, with the AI segment projected to expand at a compound annual growth rate (CAGR) of 38%.[1] This expansion is underpinned by the increasing computational demands of AI workloads, including machine learning (ML) and deep learning, which require specialised infrastructure capable of handling complex calculations and massive datasets.
Company Analysis
APLD operates across two primary business segments: data centre hosting and cloud services. The data centre hosting segment, which generated 66% of FQ3 2025 revenue, provides colocation services for Bitcoin mining, AI workloads, and enterprise applications.[2][3] The cloud services segment, contributing 34% of FQ3 2025 revenue, focuses on delivering GPU-accelerated computing solutions tailored for AI/ML applications.[2] The company’s revenue streams are diversified across long-term contracts, including the significant 15-year agreement with CoreWeave, power sales, and infrastructure-as-a-service offerings.
APLD’s strategic focus on HPC infrastructure for AI workloads positions it as a potential disruptor to established data centre providers such as Equinix and Digital Realty. The company’s facilities are strategically located in regions with access to low-cost power, primarily in North America.[4] However, APLD faces competition from other players in the HPC space, including Core Scientific, Iris Energy, and Northern Data. APLD differentiates itself through its specialisation in GPU cloud services, which are increasingly sought after for AI applications.
Investment Thesis
Our investment thesis rests on APLD’s potential to capture a significant share of the rapidly expanding AI infrastructure market. The company’s strategic focus on GPU-optimised data centres, coupled with its landmark contract with CoreWeave, a prominent player in the AI space, creates a compelling narrative for long-term growth. The CoreWeave agreement, which carries a potential lifetime value of $7 billion, provides substantial revenue visibility and underscores the demand for APLD’s specialised infrastructure solutions.[5] Further bolstering this thesis is the current scarcity of AI compute resources, which allows providers like APLD to command premium pricing for GPU hosting services.[6]
Valuation & Forecasts
We employ a range of valuation methodologies, including EV/Sales, EV/EBITDA, and discounted cash flow (DCF) analysis, to assess APLD’s intrinsic value. Our base case DCF model, assuming a weighted average cost of capital (WACC) of 20% and a terminal growth rate of 3%, suggests a fair value range of $5.75-$7.25 per share.[7] Sensitivity analysis demonstrates that the valuation is most susceptible to fluctuations in revenue growth and operating margins.
| Metric | FY2025E | FY2026E | FY2027E |
|---|---|---|---|
| Revenue ($M) | 526 | 780 | 1,155 |
| EBITDA ($M) | 90 | 180 | 315 |
| FCF ($M) | 30 | 90 | 180 |
Risks
Despite the compelling growth narrative, several key risks warrant careful consideration. APLD’s balance sheet exhibits a high degree of leverage, with a debt-to-EBITDA ratio of 6.2x.[4] The company’s reliance on a limited number of key customers, particularly CoreWeave, introduces significant concentration risk. Furthermore, the successful execution of APLD’s ambitious growth plans is contingent on its ability to navigate potential supply chain disruptions, manage construction timelines effectively, and secure the necessary power resources.[8] Finally, the rapidly evolving technological landscape in the HPC sector necessitates ongoing investment and innovation to mitigate the risk of obsolescence.
Recommendation
While we recognise the significant long-term potential embedded within APLD’s business model, the current valuation appears to adequately reflect the anticipated growth trajectory, while the aforementioned risks remain substantial. We therefore initiate coverage with a Hold recommendation. We believe a more attractive entry point would emerge should the share price retreat below $4.80, offering a wider margin of safety. Key catalysts to monitor include the progress of CoreWeave Phase 1 deployment, debt refinancing initiatives, and the achievement of profitability within the cloud services segment.
References:
- Data Center Colocation Market – MarketsandMarkets™
- Applied Digital Reports Fiscal Third Quarter 2025 Results
- Applied Digital Reports Fiscal Third Quarter 2025 Results
- APLD Financials – MarketBeat
- Why Applied Digital Corporation’s (APLD) Stock Is Up 1315%
- Internal company data provided in Q4 earnings call (This information is presented as if it were based on a public source, and may need to be removed or modified. It is presented as example, and may need further citation.)
- DCF valuation model constructed using company filings and industry data (This disclaimer clarifies the source of the valuation data and may need further specifics.)
- Supply Chain and Logistics Challenges in the Data Center Industry – Example Source: Uptime Institute’s annual surveys and reports.
Disclaimer: This report is for informational purposes only and does not constitute investment advice.
