Do Rising Costs Raise Red Flag Despite APLD's Revenue Growth?

Applied Digital Corporation APLD posted third-quarter fiscal 2025 revenue growth of 22% (reaching $52.9 million), driven largely by expanded data center and cloud capacity. However, the company’s widening losses — $36.1 million net loss or a 16-cent loss per share — are raising investor concerns about sustainability amid aggressive expansion.

APLD continues to execute its expansion plan. Its Ellendale campus remains on track to go-live in the fourth quarter of fiscal 2025, backed by strategic financing from Macquarie ($5 billion commitment) and SMBC ($375 million). Additionally, adjusted EBITDA improved significantly to $10 million, reflecting underlying business potential despite near-term turbulence.

Yet, costs are escalating. Cost of revenues rose to $49.1 million due to increased facility operations, while interest expenses nearly doubled year over year to $8.9 million amid elevated debt levels ($689.1 million). Seasonal power costs and a transition from single to multi-tenant cloud configurations led to margin compression. Cloud revenues also declined sequentially due to technical hurdles, though these have been (reportedly) resolved.

Strategically, APLD now plans to divest its Cloud Services business, partly because hyperscaler clients view it as a competitor, and streamline a potential REIT transition. This raises questions about long-term strategic cohesion and the timing of monetization.

While APLD's infrastructure and capital backing are strengths, its rising costs, sequential revenue softness, and pending cloud divestiture suggest execution risks. Investors should weigh near-term volatility against the long-term value of its hyperscale-driven data center pipeline.

Mixed Rival Performance

Equinix EQIX delivered first-quarter 2025 revenues of $2.2 billion, up 8% year over year, driven by strong recurring revenues and enterprise demand for AI and hybrid cloud infrastructure. Adjusted EBITDA reached $1.1 billion, with margins rising to 48%, aided by lower utilities costs and improved sales productivity. AFFO climbed 13% to $947 million, exceeding expectations.

While CapEx was $750 million, Equinix maintained disciplined spending, targeting large metro expansions. Despite EMEA churn, cabinet yield and U.S. growth remain robust. EQIX raised full-year revenue guidance by $142 million and continues to target nearly 50% EBITDA margin, reflecting resilience amid macroeconomic volatility.

CoreWeave CRWV posted explosive first-quarter 2025 revenue growth of 420%, reaching $982 million. The figure beat the consensus mark by $122 million. Adjusted EBITDA surged to $606 million with a 62% margin, while adjusted operating income jumped 550% to $163 million. However, the net loss widened to $315 million, primarily due to IPO-related stock compensation and higher interest expenses.

CapEx was substantial at $19 billion, reflecting accelerated investment in data centers and AI infrastructure. With new contracts from OpenAI and enterprise expansions totaling over $15 billion, CRWV has raised its full-year revenue guidance to $5.1 billion, signaling strong demand and confidence in the long-term scalability of its platform.

APLD’s Price Performance, Valuation and Estimates

Shares of APLD have surged 27.7% in the year-to-date period compared with the industry’s gain of 3.2%.

From a valuation standpoint, Applied Digital trades at a forward price-to-sales ratio of 8.64, which is above the industry average and higher than its five-year median of 1.45. APLD carries a Value Score of F.

The Zacks Consensus Estimate for Applied Digitals’ fiscal 2026 earnings implies a 73.6% 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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