Think It's Too Late to Buy Applied Digital Stock? Here's 1 Reason Why the Rally May Continue.

Applied Digital (APLD) has experienced a 250% year-to-date stock surge, primarily driven by a new 15-year, $7 billion revenue deal with AI hyperscaler CoreWeave for 250 megawatts of data center capacity. The company is strategically positioned to address the critical demand for data center capacity, particularly amidst power supply constraints, by securing its own power sources and expanding with a new $3 billion North Dakota campus. With management projecting $1 billion in operating profit within 3-5 years, the current $7 billion market cap suggests a significant potential for future valuation upside.

Analysis

Applied Digital (APLD 0.21%) is a leading designer and builder of data centers that has seen its stock rocket around 250% year to date at the time of writing. It's normal to look at a monster run like that and believe you missed the boat, but there's one reason investors should look at the stock's climb as a signal to get on board. Applied Digital stock is a bargain The stock jumped in early June when Applied Digital announced a deal to provide 250 megawatts worth of data center capacity for leading artificial intelligence (AI) hyperscaler CoreWeave. This will generate about $7 billion in revenue for the company over a 15-year term. This is just the beginning. Microsoft just recently signed a multibillion-dollar deal with Nebius for more data center capacity. Applied Digital will get its share of deals. NASDAQ: APLD Key Data Points The problem for hyperscalers like CoreWeave and Microsoft isn't getting access to chips but getting access to data centers. Data center capacity could be in limited supply down the road because of power shortages. Applied Digital has secured power sources for its data centers, which is becoming a valuable commodity. Management revealed on its last earnings call that it had completed diligence and onboarding with two more investment-grade hyperscalers in North America. It just broke ground on building a new $3 billion data center campus in North Dakota. CEO Wes Cummins believes the company can achieve $1 billion in operating profit in the next three to five years. This is why it's not too late to buy the stock. Applied Digital's current market cap is just $7 billion, implying a cheap multiple on the company's future profit potential. Applied Digital (APLD) has demonstrated significant momentum, with its stock appreciating approximately 250% year-to-date, driven by its strategic positioning within the high-demand artificial intelligence infrastructure sector. A pivotal catalyst for this performance is a 15-year agreement with AI hyperscaler CoreWeave, which is expected to generate about $7 billion in revenue by providing 250 megawatts of data center capacity. The company's competitive advantage appears to be its access to secured power sources, a critical asset in a market where data center capacity is becoming constrained by power availability. This advantage is reinforced by its expansion pipeline, which includes a new $3 billion data center campus in North Dakota and completed due diligence with two additional investment-grade hyperscalers. Management's forward guidance projects the potential for $1 billion in operating profit within three to five years, which, when compared to its current $7 billion market capitalization, frames the central bullish argument presented.

Key Decisions for Investors

• Investors with a growth-oriented mandate may view the long-term, $7 billion revenue contract and secured power sources as a de-risking factor, justifying a position despite the stock's significant recent rally.
• The investment case is heavily dependent on management's execution of its growth pipeline and achieving the stated $1 billion operating profit target; therefore, investors should closely monitor quarterly earnings for progress on new hyperscaler contracts and construction milestones.
• Given that the core thesis rests on a supply-constrained data center market, it is crucial to track industry-wide capacity additions and any changes to power availability that could erode Applied Digital's cited competitive advantage.