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Applied Digital is currently seeing considerable revenue growth as it shifts its business model.
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The anticipation surrounding an upcoming announcement regarding further commitments has played a role in driving the stock price up.
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Still, it’s worth noting that this is a capital-intensive operation, and establishing a facility isn’t inexpensive.
Applied Digital (NASDAQ:APLD) has seen its shares jump following a report of robust revenue growth for the quarter, stating it’s in advanced talks to secure 900 megawatts of data center capacity with hyperscalers.
Currently, the stock has appreciated around 250% over the last year. It’s interesting to consider what Applied Digital is up to, and whether it might still be a good buying opportunity.
The company is making notable advancements in artificial intelligence (AI). While it’s recognized for its infrastructure role, it’s more accurate to describe it as a real estate specialist rather than strictly a tech company. They’ve even announced plans to spin off part of their operations. They’re launching a new entity called ChronoScale, although it faces some customer-related conflicts. There’s even consideration of transforming it into a real estate investment trust (REIT).
Applied Digital is focused on building and running data centers specifically designed to manage AI workloads, such as training and inference for large-scale language models. The company has carved a niche through its ability to access affordable electricity, which is crucial for both its AI infrastructure and ongoing cryptocurrency mining operations.
In the most recent fiscal second quarter, Applied Digital experienced a 250% increase in revenue, reaching $126.6 million. The high-performance computing (HPC) segment alone contributed $85 million, with tenant accommodation services generating $73 million. This area is still evolving; while these services currently have low gross margins, they set the stage for potential high-margin recurring revenue later.
At the same time, revenue from its data center hosting segment grew by 15%, totaling $41.6 million, and operating income came in at $16 million. This includes two facilities in North Dakota that collectively consume 286 megawatts of power for cryptocurrency mining.
