Applied Digital Surges as Focus Shifts to Major Hyperscaler Deal
Shares climb over 8% as investors look past mixed quarterly results, betting on the company's strategic pivot to servicing large-scale AI and cloud clients.
Shares of Applied Digital (NASDAQ: APLD) surged more than 8% in trading Tuesday as investor enthusiasm builds around the company’s strategic transformation from a cryptocurrency hosting provider to a key operator of large-scale data centers for artificial intelligence and high-performance computing (HPC).
The stock climbed to $31.94, pushing its market capitalization towards $8.5 billion. The rally underscores a growing belief on Wall Street that a pending deal with a major hyperscale client will be a transformative catalyst, overshadowing the company's mixed results from earlier this year.
The central focus for investors is the progress on a significant agreement announced in January. Applied Digital confirmed it had executed a letter of intent and an exclusivity agreement with a U.S.-based hyperscaler for a 400-megawatt capacity lease at its campus in Ellendale, North Dakota. Securing a long-term lease from a major cloud provider—such as Amazon Web Services, Google Cloud, or Microsoft Azure—would represent a landmark achievement, providing stable, long-term revenue and validating Applied Digital's pivot to the high-demand HPC market.
This forward-looking optimism stands in contrast to the company's fiscal second-quarter performance, reported on January 16. For the quarter ending November 30, 2023, Applied Digital posted revenue of $42.2 million and an adjusted net loss of $0.05 per share. These figures failed to meet analyst expectations, which had anticipated revenue closer to $57 million and a profit of $0.01 per share.
While the earnings miss prompted a negative stock reaction at the time, the market has since shifted its focus from the lagging indicators of its legacy business to the future potential of its AI and cloud infrastructure segment. The company has been vocal about its strategy to attract high-credit tenants that require immense computing power for AI workloads, a far more stable and predictable business than the volatile cryptocurrency mining sector.
Wall Street has largely endorsed this strategic shift. Of the analysts covering the stock, ten rate it as a 'Buy' or 'Strong Buy,' with none recommending to hold or sell. The consensus price target sits at $43.00, suggesting significant upside from current levels and reflecting a conviction in the company's new direction.
Adding to the strategic realignment, Applied Digital has also previously announced its intention to spin off its cloud compute segment to create a more focused entity. This move is expected to unlock further value by allowing the core data center hosting business to concentrate fully on securing large-scale, long-term leases with premier tenants.
Investors are now keenly awaiting the finalization of the hyperscaler agreement, which a July update noted was still under an extended exclusivity period for final negotiation. Successful execution of the 400MW contract would be a powerful proof-of-concept for Applied Digital's high-performance data center strategy, positioning it as a key emerging player in the infrastructure build-out supporting the artificial intelligence boom.