Is Applied Digital (APLD) Stock a Buy Despite Recent Volatility? A Deep Dive into AI Infrastructure and Debt Dynamics

Applied Digital (APLD) has emerged as a focal point in the AI infrastructure sector, but its recent stock volatility-marked by a 17% drop following its Q3 2025 earnings report-has sparked debate about whether the company's long-term growth potential outweighs its short-term financial risks. This analysis evaluates APLD's strategic pivot to AI-driven data centers, its aggressive debt financing, and the diverging views of analysts to determine if the stock merits a "buy" rating.

Short-Term Risks: Debt Burden and Earnings Pressure

Applied Digital's Q3 2025 results revealed a net loss of $0.08 per share, narrowly beating expectations but missing revenue forecasts by $11.06 million, with total revenue of $52.9 million. The company's fiscal 2025 net loss ballooned to $161.0 million, or $0.80 per share, as research shows it incurred substantial capital expenditures for AI infrastructure. To fund its expansion, APLD issued $2.35 billion in 9.25% senior secured notes in November 2025, a move that has raised concerns about leverage. With a debt-to-EBITDA ratio now exceeding 10x (per industry estimates), the company faces significant interest costs and refinancing risks, particularly if AI demand slows.

The recent $375 million financing with Sumitomo Mitsui Banking Corporation (SMBC) to develop the Ellendale HPC Campus further underscores APLD's reliance on debt. While these projects aim to future-proof its data center footprint, critics argue that the company's capital structure is becoming increasingly precarious. As noted by Zacks Investment Research, APLD's forward 12-month price-to-sales ratio of 14.46x far exceeds the industry average of 3.58x, suggesting the market may be overvaluing its long-term prospects.

Long-Term Opportunities: AI Infrastructure and Strategic Leverage

Despite these risks, APLD's AI infrastructure strategy is gaining traction. The company has secured $16 billion in contracted revenue through long-term leases with hyperscalers like CoreWeave and an unnamed U.S.-based investment-grade partner. These agreements, including a 15-year, $11 billion lease with CoreWeave, provide visibility into future cash flows and align with the growing demand for AI-ready data centers. Analysts at Roth Capital and Needham have reiterated "Buy" or "Outperform" ratings, citing APLD's first-mover advantage in AI infrastructure and its ability to leverage its power-optimized sites.

A key differentiator is APLD's focus on cutting-edge technologies. Its $25 million investment in Corintis, a developer of microfluidic chip-cooling solutions, enhances its ability to manage thermal challenges in high-density AI workloads. This innovation, combined with the Polaris Forge 1 and 2 campuses' 100 MW critical IT load and $11 billion in lease value, positions APLD to capture a significant share of the AI infrastructure boom.

Balancing the Equation: Execution Risks vs. Sector Tailwinds

The critical question is whether APLD can execute its vision without derailing its balance sheet. While the company's debt-heavy approach mirrors the strategies of peers like CoreWeave and Switch, its reliance on long-term leases introduces execution risks. Delays in campus development or underperformance in securing additional hyperscaler contracts could strain liquidity. Additionally, the 9.25% interest rate on its 2030 notes means APLD must generate robust cash flows to service debt-a challenge given its current net losses.

However, the AI infrastructure sector's tailwinds remain strong. Analysts project that APLD's revenue could grow significantly in 2026 and 2027 as AI workloads intensify. The company's recent $100 million development loan with Macquarie Group further signals confidence in its ability to scale. For investors with a multi-year horizon, APLD's strategic assets and revenue visibility may justify the near-term volatility.

### Conclusion: A Buy for the Patient, Risk-Tolerant Investor Applied Digital's stock is a double-edged sword. On one hand, its aggressive debt financing and current net losses raise red flags. On the other, its AI infrastructure strategy-bolstered by transformative leases and technological innovation-positions it to benefit from the sector's explosive growth. For investors who can stomach short-term volatility and believe in the long-term value of AI-ready data centers, APLD offers compelling upside. However, those wary of overvaluation or execution risks should proceed cautiously.

In the end, APLD's success will hinge on its ability to convert its capital-intensive bets into sustainable cash flows. If it can navigate the near-term challenges, the company's AI infrastructure play could deliver outsized returns.