Nvidia's AI Portfolio: Why Applied Digital is the One Stock to Watch

In a market where AI hype has begun to cool and broader tech portfolios face headwinds, contrarian investors are increasingly turning to undervalued infrastructure plays. Among these, Applied Digital (APLD) stands out as a compelling case study. While the company reported a net loss of $161.0 million for fiscal year 2025-a 118% increase from the prior year-its strategic alignment with Nvidia, hybrid AI-crypto data center model, and long-term revenue commitments position it as a unique winner in a sector poised for consolidation. This article argues that APLD's combination of financial resilience, technological differentiation, and Nvidia's strategic backing makes it a must-watch stock for investors willing to bet on the next phase of AI infrastructure.

A Contrarian Play in a Cooling AI Market

The AI sector, once a golden child of venture capital and public markets, is showing signs of fatigue. Publicly traded AI infrastructure firms have seen valuations contract as macroeconomic pressures and regulatory scrutiny mount. Yet, Applied Digital's business model defies conventional categorization. Unlike pure-play AI companies, APLD's hybrid approach-leveraging both AI and cryptocurrency workloads-creates a dual revenue stream that insulates it from sector-specific volatility.

This duality is evident in its fiscal 2025 results: total revenue rose 6% to $144.2 million, driven by a 41% year-over-year increase in Q4 2025 to $38.0 million. While the company's net loss widened, its adjusted EBITDA of $19.6 million and $268.9 million in post-year-end funding demonstrate operational and financial flexibility. These metrics suggest APLD is not merely surviving but strategically positioning itself for long-term growth.

Nvidia's Strategic Backing: A Catalyst for Growth

Nvidia's involvement with Applied Digital is more than a financial investment-it's a strategic endorsement of APLD's infrastructure capabilities. In Q4 2025, Nvidia allocated $59 million to APLD, representing 19.4% of its AI-focused stock portfolio. This follows a $160 million strategic financing round in September 2024, where Nvidia was a cornerstone investor. Such backing signals confidence in APLD's ability to meet the surging demand for AI-ready data centers.

Nvidia's partnership with APLD is rooted in shared goals: to deploy high-performance computing (HPC) infrastructure optimized for AI workloads. APLD's liquid-cooled data centers, designed for power density and sustainability, align with Nvidia's vision for next-generation AI factories. For instance, APLD's Ellendale AI Factory Campus in North Dakota, now "Ready for Service", is a testament to this collaboration. The campus's 280MW capacity, built around APLD's Polaris Forge architecture, is tailored for Nvidia's GPU nodes, which are critical for AI and HPC applications.

Valuation Metrics: A Tale of Two Stories

Applied Digital's valuation metrics tell a complex story. As of December 2025, its P/E ratio stood at -26.98, reflecting ongoing losses. However, this negative valuation is misleading when viewed through the lens of long-term contracts and infrastructure scalability. APLD's 400MW lease with CoreWeave-expanded from 250MW after CoreWeave exercised an option-locks in $11 billion in contracted revenue over 15 years. Such durability in revenue streams is rare in the AI sector and justifies a forward-looking valuation approach.

Moreover, APLD's P/E ratio has trended upward, rising 133.8% from its 12-month average of -11.54. This suggests growing investor expectations for future profitability, particularly as APLD transitions from construction to revenue-generating operations. The company's recent funding raise and strategic partnerships further bolster its balance sheet, reducing the risk of liquidity constraints.

Competitive Positioning: Differentiation in a Crowded Market

Applied Digital's competitive edge lies in its proprietary infrastructure design and strategic partnerships. Unlike generic data center providers, APLD's focus on liquid cooling, renewable energy proximity, and AI-specific architectures creates a moat in a market dominated by hyperscalers. For example, its collaboration with BASX to develop a zero-water consumption free cooling system validates its technological leadership.

Nvidia's Elite Partner status, awarded to APLD in August 2023, underscores its technical capabilities. This designation, reserved for partners with the highest level of commitment to AI infrastructure, positions APLD as a preferred vendor for Nvidia's ecosystem. Additionally, APLD's role in NVIDIA GTC 2025-showcasing AI-ready data centers-highlights its visibility within the industry.

The Case for Immediate Investment

While APLD's current losses and negative P/E ratio may deter conventional investors, contrarians see these as temporary hurdles. The company's long-term revenue contracts, strategic partnerships with Nvidia, and infrastructure differentiation create a compelling case for growth. Moreover, the AI infrastructure market is projected to reach $500 billion by 2026, and APLD's hybrid model positions it to capture a significant share.

For investors willing to look beyond short-term earnings, APLD represents a high-conviction bet on the next industrial revolution. Its ability to convert long-term leases into cash flow, coupled with Nvidia's strategic backing, suggests that the company's current valuation is a mispricing rather than a fundamental flaw.

Conclusion

Applied Digital is not a typical AI stock-it is a hybrid infrastructure play with the potential to outperform in a cooling market. Its strategic alignment with Nvidia, durable revenue streams, and technological differentiation make it a unique opportunity for contrarian investors. While the road to profitability is not without risks, the company's financial resilience and long-term vision justify a closer look. In a sector where many are retreating, APLD's bold bets on AI and HPC infrastructure could pay off handsomely for those with the patience to wait.