Applied Digital's $5B Gamble on AI Infrastructure: A Strategic Play on the Cloud's Future

The rapid evolution of artificial intelligence (AI) and high-performance computing (HPC) has thrust data center operators into the spotlight. Among them, Applied Digital Corporation (APLD) has positioned itself as a bold player in the hyperscale data center race, leveraging a $5 billion equity financing deal with Macquarie Asset Management (MAM) to fuel its ambitions. This strategic move, paired with a landmark $7 billion lease with CoreWeave—a NVIDIA-backed AI infrastructure provider—signals a structural shift in cloud infrastructure demand. Let's dissect whether APLD's capital allocation and growth trajectory justify its valuation and investment potential.

The $5B Financing: A Masterclass in Capital Efficiency

The $5 billion perpetual preferred equity facility from Macquarie is a masterstroke of strategic financing. Key terms include:
- Initial funding: $900 million for the 400 MW Ellendale HPC Campus, with an option to invest up to $4.1 billion in future projects.
- Ownership structure: Applied retains an 85% stake in existing and future assets, minimizing shareholder dilution.
- Dividend terms: 12.75% annually, escalating over time, while ensuring a minimum 1.8x liquidation preference for Macquarie.

This structure allows APLD to de-risk its balance sheet, repay $180 million in bridge debt, and recover $300 million of equity invested in Ellendale. Critically, it also funds a 2 GW pipeline of HPC data centers—a 500% increase in capacity—without burdening shareholders with upfront costs.

Hyperscale Demand: Fueling the AI Infrastructure Boom

The hyperscale data center market is growing at a 30.9% CAGR through 2032, driven by AI, cloud computing, and 5G adoption. Applied Digital's focus on HPC infrastructure—specialized for AI workloads—aligns perfectly with this trend. Its proprietary technologies, like closed-loop liquid cooling and stranded power access, reduce energy costs and attract hyperscalers like CoreWeave.

The CoreWeave deal, a $7 billion, 15-year lease for 250 MW of IT capacity, is transformative. It provides $467 million in annualized revenue and locks in demand for years, reducing execution risk. This contrasts with peers like Equinix (EQIX), which faces margin pressures and a declining net income.

Valuation: Is APLD Priced for Disruption?

To assess APLD's upside, we compare its valuation to industry peers:

Metric	APLD	Equinix (EQIX)	Crown Castle (CCI)
Forward P/E	12.85	19.5x	18.8x
EV/EBITDA (2025)	~15x¹	26.86	18.26
2026 Earnings Growth	73.6%	7.1%	4.5%

¹ Estimated based on projected EBITDA from CoreWeave lease and $5B facility.

APLD trades at a discount to both EQIX and CCI in EV/EBITDA terms, despite its 73.6% earnings growth forecast for 2026—far outpacing peers. Its forward P/E of 12.85 is also below EQIX's 19.5x, suggesting the market underappreciates its growth potential.

Risks and Considerations

• Execution Risk: The $5B facility requires APLD to secure leases for future projects. While CoreWeave's deal is a win, competing with established players like EQIX demands consistent pipeline visibility.
• Valuation Sensitivity: APLD's stock surged 67% YTD (vs. a 5% industry decline), making it vulnerable to profit-taking. Its Zacks Value Score of “F” hints at overvaluation, but this could shift if earnings materialize.
• Regulatory and ESG Pressures: Rising scrutiny over data center carbon footprints may constrain margins unless APLD's green initiatives (e.g., renewable energy partnerships) deliver cost savings.

Investment Thesis: Buy the AI Infrastructure Play

APLD's strategic capital allocation and landmark leases position it to capture hyperscale growth at a discount to peers. Key catalysts include:
1. CoreWeave's 15-year revenue visibility, reducing investor anxiety about recurring cash flows.
2. Macquarie's funding flexibility, enabling rapid scaling without equity dilution.
3. Industry tailwinds: The 30.9% CAGR in hyperscale demand creates a runway for APLD's HPC specialization.

Recommendation: Buy APLD, targeting a 12–18 month horizon. The stock's current valuation leaves room for upside if earnings beat forecasts, especially as AI workloads drive demand for HPC infrastructure. Pair this with a stop-loss at $25 (15% below recent prices) to manage volatility.

Conclusion

Applied Digital's $5B financing and CoreWeave deal mark it as a pioneer in AI-driven infrastructure, capitalizing on a structural shift in cloud demand. While risks exist, the combination of disciplined capital allocation, industry tailwinds, and a valuation discount to peers makes APLD a compelling buy for investors willing to bet on the future of computing.

Nick Timiraos
June 6, 2025