Applied Digital has taken off since expanding beyond blockchain applications to AI.
Tailwinds continue to blow in the data center space, indicating further growth ahead.
However, the company’s high capital expenditures could prove problematic.
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Data centers are arguably the hottest growth trend right now. Companies are spending tens of billions, if not hundreds of billions, of dollars to build data centers and populate them with chips and other hardware to train and operate artificial intelligence (AI) models.
Applied Digital(NASDAQ:APLD) is riding the wave. The data center specialist’s growth has taken off since its pivot from blockchain to AI workloads. Shares are up 1,200% since the start of 2023. Analysts are expecting another banner year for the company in 2026, with current estimates predicting $552 million in revenue, a substantial 86% increase from their full-year 2025 estimate of $297 million.
Should investors buy stocks now? Here’s what you need to know.
Image source: Getty Images.
Applied Digital designs, builds and operates high-performance data centers. They cater to heavy GPU (graphics processing unit) workloads, which have demanding power and cooling requirements. The company then rents the computing output from its data centers to customers.
It launched its first data center in 2021, initially focusing on blockchain applications as its primary market. However, the company pivoted to capitalize on AI opportunities in 2023. You can see how Applied Digital’s revenue skyrocketed once it shifted its focus to AI. Applied Digital is experiencing a massive and continued boom in data center spending.
APLD (TTM) Income Data from YCharts
Major AI hyperscalers, including several “Magnificent Seven” companies, OpenAI, Oracleand others, are investing more than $350 billion in capital expenditures on AI in 2025 alone. The US government recently initiated the Genesis Mission to develop AI for national security, which will likely continue to be a tailwind for AI investment.
In total, Applied Digital cites research estimates that total demand for data center capacity will increase nearly 300% from current levels by 2030.
Wall Street analysts estimate Applied Digital will end 2025 with $297 million in revenue, followed by an increase to $552 million in 2026. Explosive revenue growth often means higher stock prices, and the stock has clearly performed well.
That said, the company is basically building data centers for its customers. It’s expensive and you can see how Applied Digital is burning through cash at a rapid rate.
APLD Free Cash Flow Data by YCharts
Applied Digital will start to recoup that money as income from its leases, but it’s fair to wonder what the profit margins will look like in the long term. How big does Applied Digital need to become to operate profitably if it must continually spend money to replace old chips and hardware, or build new data centers to increase its capacity for growth?
For now, the company is financing its data center projects by issuing new shares and taking on debt. Applied Digital’s share price has increased 196% over the past three years, and the company has approximately $700 million in long-term debt on its balance sheet.
An increasing number of shares can decrease a stock’s investment potential through dilution, and too much debt is bad news for obvious reasons.
Buying shares now means taking a leap of faith that Applied Digital will generate significant cash flow in the coming years. Or at least enough to finance yourself and pay your debt.
This is a pretty significant risk, and the stock’s valuation doesn’t give investors much of a margin of safety to take on that risk. Applied Digital’s current market capitalization of $7 billion values the stock at a price-to-sales ratio of nearly 13 times 2026 revenue estimates.
Stocks here look quite expensive. Remember, this is a hardware business that is currently burning cash. It doesn’t make sense to value it like software companies or most other AI hyperscalers, which often have profitable businesses to help fund their AI investments.
Investors should keep an eye on Applied Digital, but it’s not easy to see much value in buying the stock now.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Oracle. The Motley Fool has a disclosure policy.
Can Applied Digital Stock Be Buy Now? was originally published by The Motley Fool
