APLD Stock Rises Amid 22% Revenue Growth Despite Cloud Segment Challenges

Applied Digital Corporation (APLD) has reported a robust 22% year-over-year revenue growth in the third quarter of fiscal 2025, bringing its revenues to $52.9 million. Despite this top-line growth, the firm faces underlying challenges due to a business model under transition. Notably, the Cloud Services segment experienced a decline in revenue to $17.8 million, which management attributes to a shift toward on-demand capacity and previously unresolved technical issues in multi-tenant configurations. These issues have since been addressed.

In contrast, the Data Center Hosting segment demonstrated better performance, generating $35.2 million. This was primarily driven by full utilization at North Dakota facilities and favorable Bitcoin pricing. A key focus for Applied Digital is its strategic shift toward high-performance computing (HPC) hosting, particularly for AI-focused infrastructure, which it views as a significant growth driver.

The construction of the Ellendale campus, a vast 400MW flagship data center, is progressing on time. The first 100MW liquid-cooled facility is expected to become operational by the fourth quarter of 2025. This development is supported by significant financial backing, including a $5 billion commitment from Macquarie and $375 million from SMBC, indicating strong financial capacity for this strategic shift. CEO Wes Cummins has noted substantial leasing interest and suggests that a single anchor tenant might occupy the entire initial development, reflecting strong market demand.

Nevertheless, the company's long-term success hinges on effective execution. With monthly capital expenditures ranging from $30 million to $50 million, and $689 million in debt, strategic financial management remains crucial. APLD’s proposed divestment of its Cloud Services segment points to ongoing uncertainties linked to leasing challenges and its transition to a REIT. Although management foresees potential for the Cloud segment to rebound to annual revenues of $110-$120 million, its future within APLD remains questionable.

Hosting, specifically within AI-focused HPC infrastructure, is central to APLD's growth strategy. The uncertain status of the Cloud segment accentuates the importance of successfully leasing the Ellendale campus and executing hyperscale contracts. These steps are pivotal in sustaining growth within this capital-intensive environment.

In terms of financial results, Applied Digital achieved revenues of $52.92 million in the latest quarter, missing consensus estimates of $62.91 million. The company reported a net loss, with a negative return on equity of 77.49%, and a negative net margin. Analysts have published diverse forecasts, predicting that Applied Digital may post an EPS of -0.96 for the current fiscal year.

Ownership and trading activity reveal active engagement from both insiders and institutional investors. Notably, Director Rachel H. Lee's sale of shares suggests shifts in insider positions. Institutional investors, including ORG Wealth Partners LLC and Lake Hills Wealth Management LLC, have recently adjusted their holdings, with significant stakes being acquired and managed strategically to align with perceived opportunities within APLD’s evolving market.

Looking forward, Applied Digital's strategic pivot appears promising as it navigates the challenges associated with executing its vision for AI-centric data center hosting. However, its financial health, effectiveness in securing landmark contracts, and ability to manage existing and future obligations will be decisive factors in its ongoing growth narrative and capacity to enhance shareholder value.