Applied Digital Stock: Hold Amid Short-Term Turbulence

Applied Digital's shares have dipped 23.5%, but long-term growth remains strong. A hold recommendation is advised as the data center segment and partnerships indicate future potential despite recent declines.

Date: 29-03-2025

AI Rating: 7

Current Performance and Market Trends
Applied Digital Corporation (APLD) has faced a significant decline of 23.5% over the past three months, which is considerably worse than the broader Finance sector, which has shown a 4% increase during the same period. This underperformance raises concerns among investors about whether to hold or exit their positions. The recent downturn is attributed to market corrections rather than specific issues within the company. Notably, the emergence of competitive AI models from Chinese startup DeepSeek has fueled fears regarding the demand for Applied Digital's specialized hardware services aimed at AI applications. Investors reacted cautiously to these developments, prompting a sell-off in tech stocks amid fears of trade tensions and a slowing economy.

Growth Prospects and Financial Performance
Despite the stock's recent struggles, the company exhibits significant long-term growth potential, particularly driven by its data center segment, which provides essential services to cryptocurrency mining customers. This segment has become increasingly crucial, as it constituted 83% of the company's total revenue in fiscal 2024. With the Zacks Consensus Estimate indicating remarkable year-over-year growth of 111.2% in revenues for fiscal 2025, reaching approximately $526.57 million, and earnings per share expected to increase by 181% to 64 cents, Applied Digital shows strong financial performance prospects. The rise in Bitcoin prices, which surged over 23% in the past year, provides an additional boost, optimizing the potential growth in the enterprise's data center operations.

Valuation and Partners
Despite its excellent growth outlook, APLD’s valuation indicates it currently holds a premium, reflected in a 'Value Score' of F. Investors should be cautious in viewing this as it may affect sentiment moving forward. However, a robust partnership ecosystem with industry leaders like Super Micro Computer, Hewlett Packard Enterprise, and NVIDIA positions APLD favorably for future success. These partnerships enable Applied Digital to leverage cutting-edge technologies and adapt to increasing energy demands driven by advancing AI models.

Conclusion
In conclusion, while Applied Digital has declined sharply recently, its robust fundamentals, driven primarily by data center operations, strong partner affiliations, and promising future earnings growth suggest holding the stock may be the best course for investors.

Stocks: APLD NVDA SMCI HPE