Last Update 04 Mar 26

APLD: Hyperscale Power Leases And New AI Campuses Will Drive Future Upside

Analysts are keeping their $36 price target on Applied Digital steady, citing recent hyperscaler leases, expanded AI infrastructure contracts, and continued buy ratings across the Street as reasons to maintain their existing valuation framework, even as they update assumptions for discount rate, growth, margins, and future P/E.

Analyst Commentary

Street research on Applied Digital has generally highlighted strong interest in its AI focused infrastructure model, supported by long term colocation leases and a growing pipeline of potential hyperscaler agreements. Several firms have reiterated positive views, pointing to signed megawatts, ongoing development at key sites, and access to external funding as important pillars of the current equity story.

Recent commentary also underscores a view that short term stock volatility around large shareholder movements, such as the exit of a major chip supplier’s stake, reflects headline risk rather than a change in the underlying business thesis. Some analysts have pointed to the progression of leases with CoreWeave and a hyperscaler, as well as the prospect of an additional lease, as central to their constructive stance.

At the same time, the investment case being presented is increasingly tied to Applied Digital’s ability to scale as what one firm calls a pure play AI infrastructure landlord across hundreds of megawatts. References to 900 MW of advanced discussions, 600 MW already signed, and expectations around high adjusted EBITDA margins and project level returns show how closely Street targets are tied to the full build out and efficient operation of the Polaris Forge 1 and 2 projects.

Coverage initiations have come with a range of price targets, from US$36 through to US$99, often paired with Buy ratings and assumptions about strong long term profitability and returns on capital. Investors following these reports are being asked to weigh the potential upside from large contracted power projects against execution, funding, and timing risks as the company works through energization and development milestones at multiple sites.

Bearish Takeaways

Bearish analysts are likely to focus on the wide spread in price targets, from US$36 up to US$99, which can signal uncertainty around how to value long term AI infrastructure cash flows and the timing of those cash flows.
Heavy reliance on large projects such as Polaris Forge 1 and 2, and on signing and retaining 700 MW or more of contracted power, leaves little room for missteps, so any delays or cost overruns could challenge the assumptions that underpin more optimistic targets.
Assumptions around adjusted EBITDA margins potentially above 60% and project level returns in the mid 20% range may prove aggressive if operating costs, power pricing, or funding terms do not line up with current expectations.
The view that recent share price weakness is driven mainly by headline risk, including the exit of a large equity holder, could understate the possibility that some investors are questioning long term growth visibility, capital intensity, or the durability of AI data center demand.

What's in the News

Applied Digital has broken ground on Delta Forge 1, an AI Factory campus in a southern U.S. market. It is planned to support 430 MW of total utility power and up to 300 MW of critical IT load, with potential to scale further in 2028 and beyond (Key Developments).
Delta Forge 1 is intended to convert available power into high density AI capacity for hyperscale customers, aligning with the company’s focus on purpose built AI data center infrastructure (Key Developments).
The company reports that it is advancing Delta Forge 1 in discussions with another prospective investment grade hyperscale customer, highlighting ongoing interest in AI focused campuses (Key Developments).
Initial operations at Delta Forge 1 are expected to start in mid 2027, adding another large scale site alongside existing development projects mentioned in recent analyst commentary (Key Developments).

Valuation Changes

Fair Value: The $36.0 fair value estimate is unchanged, with no adjustment to the target price level.
Discount Rate: The discount rate has risen moderately from 9.23% to 10.10%, indicating a higher required return in the updated assumptions.
Revenue Growth: Forecast revenue growth has fallen meaningfully from 79.55% to 59.03%, pointing to a more conservative outlook for top line expansion in the model.
Net Profit Margin: Assumed net profit margin has been reduced sharply from 32.67% to 7.63%, implying lower expected profitability on future revenue.
Future P/E: The future P/E multiple has increased significantly from 48.9x to 202.7x, reflecting a much higher valuation multiple in the revised framework.

1 view

Key Takeaways

Escalating regulatory pressures, supply chain disruptions, and fast technology changes threaten Applied Digital's margins, project delivery, and long-term profitability.
Over-reliance on large leases and high debt needs increase volatility, customer risk, shareholder dilution, and challenges to sustainable earnings growth.
Long-term contracts, rapid scalable builds, energy-efficient operations, and strong demand from hyperscalers position Applied Digital for sustainable growth and improving margins in AI infrastructure.

Catalysts

About Applied Digital

Designs, develops, and operates digital infrastructure solutions to high-performance computing (HPC) and artificial intelligence industries in North America.What are the underlying business or industry changes driving this perspective?

With mounting regulatory scrutiny over energy consumption and carbon emissions for data centers, Applied Digital could face substantial increases in operating costs and project delays, which would put significant downward pressure on margins and restrict revenue growth well into the future.
As hyperscale customers ramp up efforts to own and operate their own infrastructure, Applied Digital's reliance on full-stack leasing contracts may become a disadvantage, leading to a loss of major contracts and heightened customer concentration risk, thereby increasing the volatility of future revenues and aggravating downside exposure.
Geopolitical risks and tightening trade restrictions present real threats to the supply chain for critical data center hardware, especially as Applied Digital aims to accelerate construction timelines and scale multiple sites; any disruptions could result in costly delays, higher capital expenditures, and unpredictable project delivery, impacting both profitability and earnings visibility.
The industry's rapid pace of technological change may force Applied Digital into a cycle of more frequent and expensive upgrades to stay competitive, eroding long-term profitability and neutralizing anticipated gains from current lease agreements and high-profile projects.
Heavy debt levels and persistent needs for fresh capital, as evidenced by recent equity and preferred stock issuances, could lead to sustained net losses, increased dilution for existing shareholders, and mounting interest expenses that undermine the company's ability to turn revenue growth into lasting improvements in net income and cash flow.

Applied Digital Earnings and Revenue Growth

Applied Digital Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Applied Digital compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Applied Digital's revenue will grow by 75.4% annually over the next 3 years.
The bearish analysts assume that profit margins will increase from -111.6% today to 2.6% in 3 years time.
The bearish analysts expect earnings to reach $19.9 million (and earnings per share of $0.08) by about August 2028, up from $-161.0 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 273.2x on those 2028 earnings, up from -27.2x today. This future PE is greater than the current PE for the US IT industry at 30.7x.
Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.23%, as per the Simply Wall St company report.

Applied Digital Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Applied Digital's signing of transformative 15-year lease agreements with CoreWeave for AI and high-performance computing workloads, backed by approximately $7 billion in contracted revenue, provides long-term revenue visibility and stability, directly benefitting its top line for years to come.
The company's successful onboarding and ongoing negotiations with multiple investment-grade North American hyperscalers signal strong demand for its services and suggest that the pipeline of large, creditworthy customers could steadily increase, de-risking future revenues and supporting potential earnings growth.
Applied Digital's proprietary, repeatable building design and the ability to reduce projected build times from 24 months to as little as 12–14 months gives it a competitive advantage in scaling capacity quickly, which can lower operational costs and improve gross margins over time.
The company's emphasis on building ultra-efficient, sustainable data centers in energy-advantaged locations like the Dakotas positions it to attract hyperscalers seeking lower operating costs and sustainability leadership, supporting recurring, higher-margin business and bolstering net margins as industry sustainability pressures rise.
Active expansion, strong financing partners, and the demonstrated ability to secure and fund large-scale projects-combined with the surging, secular demand for AI and high-density compute infrastructure-suggest Applied Digital is well-placed to benefit from the exponential growth in data and AI workloads, driving sustained revenue growth and increasing potential for future positive earnings surprises.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for Applied Digital is $13.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Applied Digital's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $13.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $777.5 million, earnings will come to $19.9 million, and it would be trading on a PE ratio of 273.2x, assuming you use a discount rate of 9.2%.
Given the current share price of $16.7, the bearish analyst price target of $13.0 is 28.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Regulatory And Geopolitical Risks Will Impair Future Data Center Margins