APLD Trades Higher Than Industry at 13.5X P/S: Is the Stock a Buy?

Applied Digital (APLD) shares have surged 109% year-to-date, significantly outperforming peers, driven by its strategic pivot to AI infrastructure. The company secured an $11 billion, 15-year contracted revenue deal with CoreWeave for AI data center capacity, validating its business model and providing substantial revenue visibility. APLD reported a 41% year-over-year increase in fiscal Q4 revenue to $38 million and achieved positive adjusted EBITDA of $1 million, while also planning a new $3 billion Polaris Forge 2 AI data center. Despite trading at a premium 13.5x Price/Sales multiple compared to the industry and competitors, this valuation is deemed justified by its long-term contracted revenue, accelerated AI infrastructure buildout, and improving operational efficiency, earning it a Zacks Rank #2 (Buy).

Analysis

Applied Digital (APLD) has successfully pivoted to AI-focused data center infrastructure, a move validated by a transformative 15-year, $11 billion contracted revenue agreement with CoreWeave for up to 400 megawatts of capacity. This deal provides significant long-term revenue visibility and de-risks the company's growth model. Financially, the strategy is bearing fruit, with fiscal Q4 revenue climbing 41% year-over-year to $38 million and adjusted EBITDA turning positive at $1 million, compared to a loss in the prior year. The company's growth trajectory is set to continue with the development of its $3 billion, 280-megawatt Polaris Forge 2 campus, slated to break ground in September 2025. Despite this strong fundamental outlook, APLD's valuation is notably high, with a forward Price-to-Sales multiple of 13.5x, far exceeding the industry average of 3.5x and peers like Equinix (7.8x) and Digital Realty (8.9x). This premium is reflected in its stock performance, which has surged 109% year-to-date while peers have declined. The bullish case is further supported by upward revisions in analyst loss-per-share estimates for fiscal 2026 and a technical posture above its 50-day and 200-day moving averages, suggesting market confidence in its ability to execute on its AI infrastructure pipeline.

Key Decisions for Investors

• Investors may consider the premium valuation justified by the company's significant, long-term contracted revenue base and its position as a high-growth pure-play on AI infrastructure demand.
• The stock's high 13.5x forward P/S multiple presents a key risk, making it sensitive to any execution delays on its Polaris Forge projects or a failure to diversify its customer base beyond CoreWeave.
• It is critical to monitor the construction timeline and budget for the Polaris Forge 2 campus, as successful execution is essential to validating the current growth narrative and sustaining momentum.
• The stark performance and valuation divergence between APLD and established peers like EQIX and DLR could suggest a potential pairs trade opportunity for investors seeking to hedge exposure to the data center sector while maintaining a position on the AI growth theme.