Applied Digital Bets on AI Infrastructure: Execution Is Key

Applied Digital APLD has firmly pivoted from its crypto-heavy legacy into AI-focused infrastructure, betting on a future dominated by high-performance computing demand. The company’s recent 15-year, $7 billion lease agreements with CoreWeave validate its “AI factory” thesis and have helped rerate the stock. Purpose-built data centers, especially the 250MW+ Ellendale site, position APLD as a rare, physical asset play in an otherwise cloud-native AI sector.

The transition is not without challenges. The company’s Cloud Services revenues soared nearly 220% year over year in the third quarter of fiscal 2025 but fell sequentially due to growing pains from shifting to a multi-tenant GPU model. Still, it is showing real AI monetization, not just promises. APLD’s use of cheap energy and free cooling at the Polaris Forge campus could yield $2.7 billion in cost savings — critical in a capex-heavy model.

Legacy crypto hosting remains stable (nearly $35 million revenues in the third quarter) and is now capex-light, providing a cushion as AI offerings mature. Operational efficiency is improving, with adjusted EBITDA turning positive and net losses narrowing. APLD also enjoys strong institutional backing, with $261 million in cash, $689 million in debt and a $5 billion buildout commitment from Macquarie.

However, execution is paramount. The company's outsized dependence on CoreWeave — an emerging hyperscaler — introduces concentration risk. Although CoreWeave recently exited its equity stake, warrant-based agreements suggest that strategic alignment is intact.

At current levels, APLD trades at a premium justified by scarcity and early AI traction. With an apparent rich valuation and potential volatility, the investment case remains compelling for those willing to bet on a real, asset-backed AI future. In this game of scale and speed, APLD has laid the infrastructure and now must execute well to deliver anticipated returns.

Peer Expansions

Core Scientific CORZ is strategically expanding into AI infrastructure by repurposing its existing crypto data centers, offering a faster and less capital-intensive entry into the HPC market. Unlike Applied Digital, CORZ maintains a diversified client base, avoiding overreliance on any single tenant like CoreWeave. Its closer proximity to profitability and cleaner balance sheet enhance its appeal.

However, it lacks APLD’s marquee AI lease deals and purpose-built infrastructure, which may limit scalability. While CORZ offers a lower-risk, stable path to AI exposure, its execution must evolve to match the intensifying demand for specialized, GPU-optimized data center capabilities.

Marathon Digital Holdings MARA is transforming into a vertically integrated digital energy and infrastructure firm. It’s actively developing AI-aligned modular data centers with low-latency capabilities and is in advanced talks with compute OEMs to pilot AI inference workloads in 2025.

Marathon Digital’s custom-built 2PIC immersion cooling and power-optimized sites in Texas and North Dakota are tailored for both mining and AI use cases. Its low-cost power generation strategy, including wind and flare gas, supports sustainable scalability. While still focused on Bitcoin, Marathon Digital sees AI infrastructure as a key monetization path, offering high-IRR expansion opportunities through stranded energy and flexible compute demand alignment.

APLD’s Price Performance, Valuation and Estimates

Shares of APLD have surged 38.5% in the year-to-date period compared with the industry’s gain of 8.1%.

From a valuation standpoint, Applied Digital trades at a forward price-to-sales of 8.48X, above the industry average as well as its three-year median of 1.71X. APLD carries a Value Score of F.

The Zacks Consensus Estimate for Applied Digitals’ fiscal 2026 earnings implies a 67.2% rise year over year.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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