Is Applied Digital (APLD) a Buy After a Major Pullback?

The AI infrastructure sector has become one of the most dynamic-and volatile-segments of the technology market. As artificial intelligence reshapes industries, demand for specialized hardware, data centers, and power infrastructure has surged. Yet, this boom has also created stark valuation dislocations. Some companies trade at stratospheric multiples, while others appear undervalued despite robust fundamentals. Applied Digital (APLD), a key player in AI infrastructure, has recently experienced a sharp pullback, raising the question: Is this a buying opportunity, or a warning sign in a speculative market?

Valuation Dislocation in the AI Infrastructure Sector

Applied Digital's valuation metrics are striking. As of November 2025, its price-to-sales (P/S) ratio stood at 43.7, significantly higher than the sector median of 3.27x according to data. Its price-to-earnings (P/E) ratio of 526.32 reflects a market willing to pay a premium for future growth, despite the company's current unprofitability. This contrasts sharply with sector peers. For instance, NVIDIA, a dominant force in AI chips, trades at a forward P/E below 25x, while Microsoft's P/S ratio of 14.32 appears far more conservative.

Such disparities highlight the sector's speculative nature. Companies like Nebius Group (NBIS), with a P/S ratio of 114 according to analysis, and Credo Technology (CRDO), at 55.78x according to data, are valued on the basis of perceived future dominance in niche markets. Meanwhile, firms with tangible revenue streams, such as Microsoft, are rewarded with more moderate multiples. APLD's valuation sits between these extremes, suggesting a market that is betting on its long-term potential but remains cautious about near-term execution risks.

APLD's Financial Performance and Strategic Positioning

Applied Digital's Q1 2026 results underscore its growth trajectory. Revenue surged 84% year-over-year to $64.2 million, driven by a $26.3 million tenant fit-out agreement with CoreWeave at its Polaris Forge 1 campus and data center hosting revenue. The company has secured a 400 MW lease with CoreWeave, generating approximately $11 billion in prospective lease revenue over 15 years. This contract alone provides a clear revenue runway, supported by the company's expansion into Polaris Forge 2, which has secured $50 million in funding.

However, profitability remains elusive. APLD reported a net loss of $27.8 million for the quarter, with adjusted EBITDA at just $0.5 million. Its balance sheet is also leveraged, with $687.3 million in total debt and $114.1 million in cash according to financial statements. While the company has raised $200 million through Series G preferred stock and secured $112.5 million from Macquarie Asset Management according to filings, these measures highlight the capital-intensive nature of its business model.

Sector Trends and Long-Term Prospects

The AI infrastructure sector is poised for sustained investment, with global demand for power generation and materials like copper and steel expected to drive a $1 trillion infrastructure buildout. This creates a tailwind for APLD, which is positioning itself as a critical node in the AI supply chain. Management's goal of achieving a $1 billion net operating income (NOI) run rate within five years according to financial projections hinges on the successful completion of Polaris Forge 1 and 2, which, if executed, could transform the company into a cash-generative asset.

Yet, the sector's valuation premiums are not uniform. AI developer tools and vertical SaaS platforms-such as orchestration platforms and model monitoring systems-are commanding multiples north of 8x revenue, reflecting their embedded value in developer ecosystems. APLD, by contrast, operates in a more capital-intensive segment, where valuations are tied to physical infrastructure rather than recurring software revenue. This distinction may limit its upside relative to peers, even as its long-term demand is secured by multi-gigawatt contracts.

Risks and Considerations

The primary risks for APLD lie in execution and debt management. Delays in Polaris Forge 1's completion or rising interest rates could strain its balance sheet. Additionally, the company's reliance on a single tenant (CoreWeave) for 400 MW of capacity introduces concentration risk. While CoreWeave's commitment is substantial, any disruption in this partnership could derail APLD's growth narrative.

Moreover, the sector's speculative valuations are vulnerable to macroeconomic shifts. A slowdown in AI adoption or a correction in tech multiples could disproportionately impact high-P/E names like APLD. Investors must weigh these risks against the company's strategic positioning in a sector with structural demand.

Conclusion: A Buy or a Wait?

Applied Digital's valuation dislocation reflects both optimism and caution. Its high P/S and P/E ratios suggest a market that is pricing in long-term growth but remains skeptical about near-term profitability. The company's contracted revenue and infrastructure expansion provide a compelling narrative, particularly in a sector where demand is expected to outstrip supply for years. However, its unprofitable status and heavy debt load necessitate a disciplined approach.

For investors with a long-term horizon and a tolerance for volatility, APLD's pullback may present an entry point. The key will be monitoring its execution on Polaris Forge and its ability to manage debt while capitalizing on the AI infrastructure boom. In a sector where dislocation is the norm, APLD's story is far from over-but patience will be rewarded only if the company delivers on its ambitious vision.