Applied Digital (APLD): A High-Conviction Buy Before Q4 Earnings

The stock market thrives on transformation. For investors seeking long-term value, few stories are as compelling as Applied Digital (APLD), a company poised to capitalize on the explosive growth of AI infrastructure while navigating a volatile short-term landscape. With a strategic pivot from crypto hosting to AI-centric data centers, a 15-year $7 billion lease with CoreWeave, and a forward-looking valuation that discounts its potential, APLD represents a high-conviction opportunity for those willing to ride through near-term turbulence.

Strategic Pivot: From Crypto to AI “Factories”

Applied Digital's journey from a crypto-focused entity to an AI infrastructure leader is the linchpin of its investment thesis. The company's 2022 name change from Applied Blockchain marked the beginning of this transformation, but the true catalyst came in 2025 with the CoreWeave partnership. This 15-year, $7 billion lease agreement—effectively turning APLD into a “GPU factory” for AI—has redefined its role in the market.

The Ellendale campus in North Dakota, a 250MW+ facility optimized for AI workloads, epitomizes this shift. Designed with liquid cooling, stranded power access, and a Power Usage Effectiveness (PUE) of 1.18, the campus is a blueprint for next-generation HPC infrastructure. By leveraging stranded energy and cool climates, APLD is building a cost-efficient model that rivals traditional data centers. The Polaris Forge 01 campus, with its $2.7 billion in projected 30-year savings, further underscores the company's ability to monetize AI-driven demand.

AI-Driven Tailwinds: A $500B Market Opportunity

The AI infrastructure market is no longer a speculative bubble—it's a structural shift. According to MarketsandMarkets, the global AI infrastructure market is projected to grow at a 26.6% CAGR, reaching $499.33 billion by 2034. APLD's 1.4GW pipeline and purpose-built AI campuses position it to capture a meaningful share of this growth.

What sets APLD apart is its execution. While competitors like Equinix and CoreWeave focus on hyperscale leasing, APLD's model emphasizes vertical integration. By retaining 85% ownership in its assets through a $5 billion perpetual preferred equity deal with Macquarie, APLD ensures long-term cash flow stability. The company's $200 million follow-on offering in June 2025 and a $150 million liquidity buffer further insulate it from near-term capital constraints.

Undervaluation: A Stock Trading at a Discount to Its Potential

Despite its strategic momentum, APLD trades at a Price-to-Sales (P/S) ratio of 11.6x, significantly higher than the peer average of 3.3x and the IT industry average of 2.7x. On the surface, this appears expensive. But context is critical: APLD is unprofitable, so P/S is the only relevant metric. Analysts project 71.76% annual earnings growth, a figure that justifies a premium valuation if realized.

The stock's current price of $10.58 also reflects its volatility—a beta of 5.87 indicates weekly swings of 20.2%, far exceeding the market average of 6.3%. Yet this volatility is a feature, not a bug. The Zacks Consensus Estimate of $14.61—a 38% upside—suggests analysts see value in APLD's AI narrative, even as they acknowledge the risks.

Q4 Earnings: A Make-or-Break Catalyst

With Q4 2025 earnings scheduled for July 30, 2025, the next two weeks could be pivotal. The market expects a 13.2% revenue drop to $37.94 million and an adjusted loss of -$0.16 per share. While these numbers look dire, they mask progress: APLD's Cloud Services segment grew 220% YoY in Q3, and the Ellendale campus is on track for Q4 activation.

The risk lies in execution. Delays in multi-phase deployments or a slowdown in AI demand could test investor patience. However, the company's $5 billion Macquarie deal and $375 million SMBC loan provide a safety net, ensuring APLD can weather short-term hiccups.

Investment Thesis: Buy, But With Caution

APLD is a high-conviction trade for long-term investors. Its AI infrastructure strategy aligns with a multi-decade growth trend, and its partnerships with CoreWeave and Macquarie provide both credibility and capital. While the stock's volatility and debt load (42.8x net debt-to-EBITDA) are red flags, they are offset by the company's first-mover advantage in purpose-built AI campuses and access to stranded power.

For those willing to tolerate short-term noise, the current price offers a compelling entry point. If APLD surprises on Q4 earnings—or if the Ellendale campus ramps to full capacity—the stock could reprice to its projected fair value of $14.61. However, a conservative approach is warranted: allocate a small portion of a high-risk portfolio to APLD and monitor its execution closely.

In the end, APLD is not for the faint of heart. It's a speculative bet on the future of AI infrastructure, with all the risks and rewards that entails. But for investors who see the writing on the wall, the potential rewards are as vast as the AI revolution itself.