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With Cloud Revenues Sliding, Can Hosting Sustain APLD's Growth?

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Key Takeaways

  • APLD Q3 revenues rose 22% YoY to $52.9M, but Cloud sales fell to $17.8M on config issues and on-demand shift.
  • APLD's hosting revenues hit $35.2M, boosted by full North Dakota utilization and Bitcoin price tailwinds.
  • APLD eyes AI-focused growth with Ellendale buildout, but $30-50M monthly CapEx and $689M debt raise risks.

Applied Digital (APLD - Free Report) delivered 22% year-over-year revenue growth in the third quarter of fiscal 2025, reaching $52.9 million. However, underlying this top-line expansion is a shifting business model under pressure. The company’s Cloud Services segment revenues declined sequentially to $17.8 million, primarily due to a transition to on-demand capacity and technical issues with a multi-tenant configuration, now resolved.

In contrast, the Data Center Hosting segment generated $35.2 million, benefiting from full utilization at two North Dakota facilities and supportive Bitcoin pricing. Yet, the real story lies in APLD’s pivot to high-performance computing (HPC) hosting, where it’s betting big on AI-focused infrastructure.

Construction of the Ellendale campus — a 400MW flagship data center — is progressing on schedule, with the first 100MW liquid-cooled facility set to go live in fourth-quarter 2025. Backed by $5 billion from Macquarie and $375 million from SMBC, the company is well-capitalized to execute this pivot. CEO Wes Cummins emphasized strong inbound leasing interest, stating discussions with multiple hyperscalers and expectations that a single anchor customer could occupy the entire initial build.

However, APLD’s long-term thesis relies on execution. CapEx remains aggressive at $30-$50 million per month, and the company carries $689 million in debt. Its plan to divest the Cloud Services business, partly due to friction with leasing prospects and REIT transition goals, introduces uncertainty around monetization and competitive positioning. While management believes the Cloud segment could rebound to $110-$120 million in annual revenues, its future under APLD is uncertain.

Hosting, particularly in AI-focused HPC infrastructure, has become the cornerstone of APLD’s growth strategy. With the Cloud segment in flux, successful lease-up of the Ellendale campus and timely execution on hyperscale contracts will be critical to validating this pivot and sustaining growth in a capital-intensive landscape.

Competitive Landscape

Digital Realty (DLR - Free Report) is aggressively scaling its AI infrastructure footprint, supported by a newly formed $10 billion U.S. Hyperscale Data Center Fund, targeting top-tier metros like Northern Virginia, Dallas and Silicon Valley. In the first quarter, Digital Realty signed a record backlog of $919 million in booked-not-billed leases and expanded its development pipeline by 170MW to a total of 814MW — 63% of which is pre-leased. AI-driven demand contributed to record pricing of $244kW/month. Notably, a leading AI inference firm joined PlatformDIGITAL, leveraging its high-density and liquid-cooled infrastructure, including the new FRA18 center in Frankfurt. Digital Realty’s strategy emphasizes scale, sustainability and contiguous capacity for AI use cases.

Equinix (EQIX - Free Report) is capitalizing on strong AI-driven demand, with notable AI wins in the first quarter, including deployments for Block’s NVIDIA DGX SuperPOD and Grok’s inference platform. The company’s high-performance infrastructure and interconnection ecosystem make it an ideal platform for scalable AI workloads. EQIX is actively building larger IBX facilities, and 56 major projects are underway across 33 metros, including 12 xScale sites. 85% of xScale projects are pre-leased. Its “Build Bolder” strategy emphasizes fewer, higher-density builds with fast cabinet rollout, while global AI momentum is supporting recurring revenue step-ups and margin expansion. Equinix expects AI-related growth to accelerate throughout 2025.

APLD’s Price Performance, Valuation and Estimates

Shares of APLD have gained 24.6% in the year-to-date period compared with the industry’s growth of 4.5%.

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From a valuation standpoint, Applied Digital trades at a forward price-to-sales of 7.97X, above the industry average as well as its five-year median of 1.47. APLD carries a Value Score of F.

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The Zacks Consensus Estimate for Applied Digital’s fiscal 2026 earnings implies a 67.7% rise year over year.

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The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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