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Applied Digital Slides 37% YTD: Time to Exit or Hold the Stock?
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Key Takeaways
APLD has fallen 36.6% YTD, lagging its industry as costly AI expansion raises profitability concerns.
APLD's GAAP net loss widened to $221 million, while quarterly interest expense surged to $77.4 million.
APLD's $36B portfolio offers potential, but power constraints and weaker earnings estimates pose risks.
Shares of Applied Digital (APLD - Free Report) have declined 36.6% year to date, trailing the Zacks Financial - Miscellaneous Services industry’s 18.1% drop and the broader Zacks Finance sector’s 3.5% gain. The sell-off underscores concerns that its ambitious AI data-center buildout may consume enormous capital before generating consistent profits.
APLD significantly underperformed its industry peers, including Virtu Financial (VIRT - Free Report) , HA Sustainable Infrastructure Capital (HASI - Free Report) and Circle Internet Group (CRCL - Free Report) . During the period, Virtu Financial’s shares surged 61.8%, while HA Sustainable Infrastructure Capital gained 23.8%. In contrast, Circle Internet Group declined 14.4%, still outperforming APLD. This underperformance raises a key question for investors: Is it time to exit the stock, or should they remain patient as the company works to convert its substantial contracted AI-infrastructure portfolio into revenues and profits? Let's analyze.
APLD Underperforms Its Industry and Peers
Image Source: Zacks Investment Research
Rising Financing Costs and Losses Remain Major Risks
Despite 322% year-over-year revenue growth to $341.9 million in first-quarter fiscal 2027, Applied Digital's revenue mix raises questions about the sustainability of its growth. Its High-Performance Computing (HPC) Hosting business generated $262.6 million, including $183.5 million from tenant fit-out services, compared with just $65.8 million in base rental revenues. Fit-out services are linked to construction and customer deployment activity, rather than representing recurring rental income. Consequently, investors should focus on the pace at which Applied Digital converts its contracted capacity into operational facilities and generates a growing stream of recurring rental revenues.
Profitability also remains a significant concern. The GAAP net loss from continuing operations attributable to common stockholders widened to $221 million, or 76 cents per share, from $18.5 million, or 7 cents, a year earlier. Although adjusted net loss was considerably lower at $4.1 million, or 1 cent per share, and adjusted EBITDA reached $64.4 million, these non-GAAP measures exclude ChronoScale, whose results are included in consolidated GAAP financials. Investors should therefore avoid treating the adjusted figures as directly comparable to the reported GAAP loss.
The company's expanding financing burden adds another layer of risk. Interest expense climbed to $77.4 million from $8 million in the prior-year quarter, reflecting increased debt arrangements. Selling, general and administrative expenses also jumped to $114.7 million from $29.5 million, partly due to higher stock-based compensation, personnel costs and professional services. These rising expenses could weigh on earnings even as additional data center capacity comes online.
Capital requirements remain substantial. Applied Digital spent $2.07 billion on property, equipment and other assets during the quarter. It ended August with approximately $6.4 billion in debt versus $3.7 billion in cash, equivalents and restricted cash. The three largest customers accounted for 88% of quarterly revenues, adding concentration risk to an already capital-intensive expansion.
Power Constraints Threaten APLD’s Expansion Plans
Power remains a key structural challenge to Applied Digital’s long-term AI data center expansion. Management identifies electricity availability as the industry’s largest gating factor. The company signed a 15-year agreement with Base Electron for power from a planned 1,200-MW natural gas facility in North Dakota, with deliveries expected to begin in 2030. However, the agreement may be terminated if the facility fails to achieve financial close by March 31, 2027, creating uncertainty around future capacity expansion.
Infrastructure constraints extend beyond North Dakota. Applied Digital’s potential 1-GW Finland project expects its first 100 MW in 2028, with capacity ramping through 2031. Meanwhile, industrywide equipment supply chains remain tight. Although the company has secured key components through long-term supplier arrangements, additional procurement capacity is needed to support future development. Power-related disruptions or equipment shortages could delay project completion, defer rental revenues and constrain long-term growth.
Applied Digital’s Earnings Estimates Continue to Widen
Analyst earnings revisions point to mounting concerns about Applied Digital’s path to profitability. The Zacks Consensus Estimate for second-quarter fiscal 2027 loss is currently pegged at 44 cents per share, compared with a loss of 34 cents projected 30 days ago.
The longer-term outlook has weakened further. For fiscal 2027, the consensus loss estimate has widened to $2.17 per share from $1.35 over the past 30 days. The fiscal 2028 estimate has also deteriorated considerably, with the projected loss increasing to $1.99 per share from 71 cents.
Image Source: Zacks Investment Research
Unlike APLD, Virtu Financial, HA Sustainable Infrastructure Capital and Circle Internet Group have posted more favorable earnings estimate revision trends, suggesting greater confidence in their earnings prospects.
APLD’s Moving Averages Signal Bearish Momentum
APLD's technical outlook remains bearish, with the stock trading at $15.55 as of Friday, significantly below its 50-day simple moving average (SMA) of $22.92 and its 200-day SMA of $30.84. Trading below both moving averages indicates sustained downward price momentum and reflects weak investor sentiment toward the stock.
APLD Shares Trade Below 50-Day and 200-Day SMAs
Image Source: Zacks Investment Research
Here’s Why You Should Sell APLD Stock Now
Applied Digital's rapid revenue growth and $36 billion contracted revenue portfolio offer long-term potential, but investors must weigh them against widening projected losses, heavy capital spending, rising debt and interest costs, customer concentration and execution risks tied to power and construction. With shares sharply below key moving averages and earnings estimates deteriorating, the risk-reward profile remains unfavorable. Investors prioritizing improving earnings visibility may consider selling rather than waiting for profitability.
Currently, Applied Digital stock has a Zacks Rank #5 (Strong Sell).
View the Zacks #1 Rank List
Image: Shutterstock
Applied Digital Slides 37% YTD: Time to Exit or Hold the Stock?
Key Takeaways
Shares of Applied Digital (APLD - Free Report) have declined 36.6% year to date, trailing the Zacks Financial - Miscellaneous Services industry’s 18.1% drop and the broader Zacks Finance sector’s 3.5% gain. The sell-off underscores concerns that its ambitious AI data-center buildout may consume enormous capital before generating consistent profits.
APLD significantly underperformed its industry peers, including Virtu Financial (VIRT - Free Report) , HA Sustainable Infrastructure Capital (HASI - Free Report) and Circle Internet Group (CRCL - Free Report) . During the period, Virtu Financial’s shares surged 61.8%, while HA Sustainable Infrastructure Capital gained 23.8%. In contrast, Circle Internet Group declined 14.4%, still outperforming APLD. This underperformance raises a key question for investors: Is it time to exit the stock, or should they remain patient as the company works to convert its substantial contracted AI-infrastructure portfolio into revenues and profits? Let's analyze.
APLD Underperforms Its Industry and Peers
Image Source: Zacks Investment Research
Rising Financing Costs and Losses Remain Major Risks
Despite 322% year-over-year revenue growth to $341.9 million in first-quarter fiscal 2027, Applied Digital's revenue mix raises questions about the sustainability of its growth. Its High-Performance Computing (HPC) Hosting business generated $262.6 million, including $183.5 million from tenant fit-out services, compared with just $65.8 million in base rental revenues. Fit-out services are linked to construction and customer deployment activity, rather than representing recurring rental income. Consequently, investors should focus on the pace at which Applied Digital converts its contracted capacity into operational facilities and generates a growing stream of recurring rental revenues.
Profitability also remains a significant concern. The GAAP net loss from continuing operations attributable to common stockholders widened to $221 million, or 76 cents per share, from $18.5 million, or 7 cents, a year earlier. Although adjusted net loss was considerably lower at $4.1 million, or 1 cent per share, and adjusted EBITDA reached $64.4 million, these non-GAAP measures exclude ChronoScale, whose results are included in consolidated GAAP financials. Investors should therefore avoid treating the adjusted figures as directly comparable to the reported GAAP loss.
The company's expanding financing burden adds another layer of risk. Interest expense climbed to $77.4 million from $8 million in the prior-year quarter, reflecting increased debt arrangements. Selling, general and administrative expenses also jumped to $114.7 million from $29.5 million, partly due to higher stock-based compensation, personnel costs and professional services. These rising expenses could weigh on earnings even as additional data center capacity comes online.
Capital requirements remain substantial. Applied Digital spent $2.07 billion on property, equipment and other assets during the quarter. It ended August with approximately $6.4 billion in debt versus $3.7 billion in cash, equivalents and restricted cash. The three largest customers accounted for 88% of quarterly revenues, adding concentration risk to an already capital-intensive expansion.
Power Constraints Threaten APLD’s Expansion Plans
Power remains a key structural challenge to Applied Digital’s long-term AI data center expansion. Management identifies electricity availability as the industry’s largest gating factor. The company signed a 15-year agreement with Base Electron for power from a planned 1,200-MW natural gas facility in North Dakota, with deliveries expected to begin in 2030. However, the agreement may be terminated if the facility fails to achieve financial close by March 31, 2027, creating uncertainty around future capacity expansion.
Infrastructure constraints extend beyond North Dakota. Applied Digital’s potential 1-GW Finland project expects its first 100 MW in 2028, with capacity ramping through 2031. Meanwhile, industrywide equipment supply chains remain tight. Although the company has secured key components through long-term supplier arrangements, additional procurement capacity is needed to support future development. Power-related disruptions or equipment shortages could delay project completion, defer rental revenues and constrain long-term growth.
Applied Digital’s Earnings Estimates Continue to Widen
Analyst earnings revisions point to mounting concerns about Applied Digital’s path to profitability. The Zacks Consensus Estimate for second-quarter fiscal 2027 loss is currently pegged at 44 cents per share, compared with a loss of 34 cents projected 30 days ago.
The longer-term outlook has weakened further. For fiscal 2027, the consensus loss estimate has widened to $2.17 per share from $1.35 over the past 30 days. The fiscal 2028 estimate has also deteriorated considerably, with the projected loss increasing to $1.99 per share from 71 cents.
Image Source: Zacks Investment Research
Unlike APLD, Virtu Financial, HA Sustainable Infrastructure Capital and Circle Internet Group have posted more favorable earnings estimate revision trends, suggesting greater confidence in their earnings prospects.
APLD’s Moving Averages Signal Bearish Momentum
APLD's technical outlook remains bearish, with the stock trading at $15.55 as of Friday, significantly below its 50-day simple moving average (SMA) of $22.92 and its 200-day SMA of $30.84. Trading below both moving averages indicates sustained downward price momentum and reflects weak investor sentiment toward the stock.
APLD Shares Trade Below 50-Day and 200-Day SMAs
Image Source: Zacks Investment Research
Here’s Why You Should Sell APLD Stock Now
Applied Digital's rapid revenue growth and $36 billion contracted revenue portfolio offer long-term potential, but investors must weigh them against widening projected losses, heavy capital spending, rising debt and interest costs, customer concentration and execution risks tied to power and construction. With shares sharply below key moving averages and earnings estimates deteriorating, the risk-reward profile remains unfavorable. Investors prioritizing improving earnings visibility may consider selling rather than waiting for profitability.
Currently, Applied Digital stock has a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.