The Applied Digital Breakout Is Only the Beginning

Shares of Applied Digital Corp. (NASDAQ: APLD) recently hit a new 52-week high, which might scare some investors away, worried about buying at the top of the cycle or valuation limits. However, making a decision based on a chart is often the wrong approach, as fundamentals are more important now than ever.

The technology sector is at a defining point in history, with valuations reaching new all-time highs nearly every week. Investors are torn between believing that “this time is different” or remembering that those are the most dangerous words in finance. While this time may not be different, some fundamental points suggest the rally in technology isn’t over.

Case in point is NVIDIA Co. (NASDAQ: NVDA), one of the most controversial names due to its significant growth. On a simple valuation metric, the price-to-earnings-growth (PEG) ratio, which gauges today’s price relative to tomorrow’s earnings growth, suggests NVIDIA is only fairly valued, far from being the “bubble” that some in the online space have been calling it.

No Bubble, Applied Digital Roars on Revolution

Back to Applied Digital, and why this stock’s rally is just the start. Although calling a 67% quarterly rally the “beginning” seems bold, it seems justified. The main reasons for its outperformance are its business model and current demand.

After the recent neck-breaking rally in Oracle Corp. (NYSE: ORCL), investors realized that the demand for cloud computing (and data centers) is still alive and growing. Combining this direct data with the theme of data centers growing across the United States will create the perfect tailwind cocktail for investors in Applied Digital.

This is the gold rush versus shovels scenario, where the gold rush is centered around artificial intelligence, and the shovels are the ground upon which these models and technology sit. That’s precisely what Applied Digital represents, and why there’s much more upside left in the coming years.

In fact, there is a very real disconnect between today’s pricing mechanism and the sort of clients Applied Digital serves. With only $4.9 billion in market capitalization, this company is a tiny blip on the radar that serves companies now quoted (or nearly quoted) to be in the trillions.

An addressable market worth trillions should command a higher valuation than just under $5 billion, shouldn’t it? Well, that’s what some savvy participants on Wall Street have started betting on.

Smart Money Likes Applied Digital

Whether due to its momentum or, more likely, its fundamentals, institutional buyers have started buying into Applied Digital stock recently, with further buying waves being set in the future. Hood River Capital Management was one of these recent buyers, with a 2.8% boost to its holdings as of mid-August 2025.

This new allocation brought their net position to a high of $220.1 million today, or 8.3% ownership in the entire company, which acts as a vote of confidence and confirmation of these future fundamentals being at play here. However, no amount of reasoning will be able to take away from the bears calling all of this a “bubble,” and it shows.

30.4% of the company’s float is now held in short positions, worth $1 billion today. It doesn’t take a rocket scientist to know that this $4.9 billion valuation has better chances of reaching $10 billion than falling below $1 billion anytime soon.

These short sellers might struggle to hold their positions. A future high double-digit rally in the stock could cause a short squeeze and boost buying demand.

Some Wall Street analysts see a likely rally for Applied Digital. The consensus rates it as a Buy at $15.6 per share with about 17% downside, but others are more optimistic. Kevin Dede from Wainwright values it at $20, while Craig-Hallum estimates $23. The stock could rise 7% to 23%, supported by a strong fundamental setup.

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

The article "The Applied Digital Breakout Is Only the Beginning " first appeared on MarketBeat.