Last Update 23 Dec 25

APLD: Long-Term Hyperscale Power Access Will Drive Future AI Leasing Demand

Analysts have lifted their average price target on Applied Digital to about $40 from roughly $23, citing the validation of its hyperscale data center strategy through the $11B CoreWeave contract, stronger than expected Q1 results, and a growing multi-gigawatt AI infrastructure pipeline supported by robust financing.

Analyst Commentary

Bullish analysts emphasize that Applied Digital is emerging as a key beneficiary of the accelerating shift toward AI infrastructure, with recent sector transactions underscoring the strategic value of power access and scalable data center capacity. They argue that the company is well placed to convert its large development pipeline into long dated, high value contracts that support sustained earnings growth and multiple expansion.

Bullish Takeaways

Bullish analysts highlight that multiple price target increases into the high 30s to low 40s reflect rising confidence in Applied Digital's hyperscale data center strategy and the durability of its AI focused demand profile.
Several research notes point to the 15 year, multibillion dollar AI contract and related financing facilities as evidence that the company can secure long term, leverageable cash flows that support further buildouts with limited equity dilution.
The active 4GW pipeline, new campus developments at Polaris Forge and Harwood, and early discussions with additional hyperscalers are seen as catalysts that could extend the current growth runway and justify premium valuation multiples.
Sector commentary around the scarcity of power, land, and critical components suggests that operators with substantial secured power portfolios, such as Applied Digital, could benefit from favorable pricing and structurally higher returns on invested capital.

Bearish Takeaways

Bearish analysts caution that near term results remain influenced by one time technical fit out revenue, which can introduce earnings lumpiness and complicate efforts to model a clean, recurring cash flow profile.
Some skepticism remains around execution risk, with concerns that aggressive capacity expansion, multiple concurrent campus builds, and reliance on a concentrated set of hyperscale tenants could pressure returns if any large deal is delayed or repriced.
Valuation sensitivity is high given that most of the equity story is now tied to future leasing activity and successful commercialization of the multi gigawatt pipeline, leaving the stock exposed if deal flow or ramp timelines fall short of expectations.
There is also an undercurrent of concern that rapidly rising sector valuations, driven by scarcity of AI infrastructure assets, may be baking in optimistic assumptions around long term power pricing, utilization, and capital market access.

What's in the News

Completed the second 50 MW phase at Building 1 of the Polaris Forge 1 AI Factory Campus in Ellendale, North Dakota, bringing the building to its full 100 MW critical IT load and marking completion of the first of three contracted buildings at the site (Key Developments).
Secured a recently executed $5 billion lease with a U.S. based investment grade hyperscaler at the Polaris Forge 2 campus, lifting total contracted revenue to approximately $16 billion across the Polaris Forge 1 and 2 campuses and advancing the long term North Dakota development pipeline (Key Developments).
Entered into a 15 year lease agreement with a U.S. based investment grade hyperscaler for 200 MW of critical IT load at the under construction Polaris Forge 2 campus near Harwood, North Dakota, and obtained a first right of refusal on an additional 800 MW that could fully build out the 1 GW campus (Key Developments).
Reached 600 MW of total leased capacity with two of the world's largest hyperscalers across the Polaris Forge 1 and Polaris Forge 2 campuses, underscoring Applied Digital's rapid scaling as a U.S. AI infrastructure provider (Key Developments).
Shareholders approved a Certificate of Amendment increasing the authorized common stock to 600,000,000 shares, which enhances balance sheet and capital raising flexibility for future growth initiatives (Key Developments).

Valuation Changes

Fair Value: Unchanged at $43.70 per share, indicating no revision to the intrinsic value estimate despite recent developments.
Discount Rate: Risen slightly from 9.17% to approximately 9.26%, reflecting a modest increase in perceived risk or required return.
Revenue Growth: Effectively unchanged at about 79.93%, suggesting no material shift in long term top line growth expectations.
Net Profit Margin: Remains stable at roughly 21.79%, indicating no meaningful change to long run profitability assumptions.
Future P/E: Increased marginally from about 88.26x to 88.47x, implying a slightly higher valuation multiple on projected earnings.

Long-term AI hyperscaler contracts, efficient building processes, and strategic locations drive revenue growth, margin expansion, and sustainability advantages.
Growing pipeline with major hyperscale clients and industry demand lowers customer risk and supports earnings visibility amid the digital transformation trend.
Heavy reliance on volatile crypto, aggressive debt-fueled expansion, concentrated customers, intensifying competition, and escalating regulatory and technology upgrade demands pose substantial financial and operational risks.

Catalysts

About Applied Digital

Designs, develops, and operates digital infrastructure solutions to high-performance computing (HPC) and artificial intelligence industries in North America.What are the underlying business or industry changes driving this perspective?

The company has recently secured long-term (15-year) leasing agreements with CoreWeave-a major AI hyperscaler-for its purpose-built AI/HPC data center campus, Polaris Forge 1, representing a total of $7 billion in contracted revenue and a multi-year, recurring, and predictable revenue stream that directly supports future revenue growth and cash flow stability.
Momentum in the data center segment is underpinned by surging demand for AI infrastructure, and Applied Digital is leveraging its streamlined proprietary building designs to reduce build times from 24 months to 12–14 months, enabling faster scaling of capacity and greater capital efficiency, which is likely to benefit both revenue growth and net margin expansion.
The company's focus on locating campuses in the Dakotas enables access to abundant, low-cost, and renewable power, with optimized liquid cooling and energy efficient designs (projected PUE of 1.18 and near-zero water consumption), significantly lowering operating costs per megawatt and providing a long-term net margin advantage in a market that increasingly prioritizes sustainability.
Relationships with multiple investment-grade North American hyperscalers-with two new customers already onboarded and several others in late-stage negotiations-suggest a robust pipeline of additional large-scale, high-value contracts, reducing future customer concentration risks and boosting long-term revenue visibility.
The accelerating industry need for high-density, geographically distributed data centers to support AI and machine learning workloads places Applied Digital in a favorable position, capitalizing on digital transformation trends that are set to drive ongoing utilization growth, improved asset values, and ultimately earnings expansion over the next several years.

Applied Digital Earnings and Revenue Growth

Applied Digital Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Applied Digital's revenue will grow by 73.7% annually over the next 3 years.
Analysts assume that profit margins will increase from -111.6% today to 13.5% in 3 years time.
Analysts expect earnings to reach $102.2 million (and earnings per share of $0.35) by about September 2028, up from $-161.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $221.2 million in earnings, and the most bearish expecting $18 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 79.4x on those 2028 earnings, up from -23.4x today. This future PE is greater than the current PE for the US IT industry at 32.4x.
Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.27%, as per the Simply Wall St company report.

Applied Digital Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company maintains significant exposure to cryptocurrency mining customers, and although management is optimistic about this segment, continued volatility in the crypto market may result in inconsistent revenue streams and undermine long-term earnings stability.
Applied Digital's aggressive expansion involves substantial capital expenditures and a rising debt load ($688.2 million in debt as of quarter end), which increases financial leverage and balance sheet risk; failure to achieve targeted utilization or contract new customers could depress net margins and strain cash flows if growth assumptions are not met.
The company's major revenue growth hinges on a limited number of large hyperscaler customers (such as CoreWeave), creating meaningful client concentration risk-losing or renegotiating these contracts could lead to sharp reductions in both revenue and earnings reliability.
Long-term industry competition is intensifying with well-capitalized hyperscalers and infrastructure providers, who may leverage their scale to exert pricing pressure, erode Applied Digital's market share, and potentially compress margins over time.
Ongoing technological evolution in HPC/data center infrastructure (e.g., chipsets, liquid cooling, energy efficiency) may require Applied Digital to commit to frequent and expensive upgrades; combined with increasing regulatory and ESG scrutiny on data centers' energy usage, this could result in sustained capital intensity, impact net margins, and limit access to capital.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $19.375 for Applied Digital based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $13.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $755.7 million, earnings will come to $102.2 million, and it would be trading on a PE ratio of 79.4x, assuming you use a discount rate of 9.3%.
Given the current share price of $14.38, the analyst price target of $19.38 is 25.8% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

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Power Control And Long-Term Leases Will Drive AI Data Center Expansion