Last Update 07 Jan 26

Fair value Increased 177%

APLD: Long Term Hyperscale Power Contracts Will Drive Future AI Campus Leasing

Narrative Update on Analyst Price Targets

The analyst fair value estimate for Applied Digital has moved from US$13 to US$36. Analysts point to stronger expected EBITDA margins from the Polaris Forge projects, expanding power capacity for AI data centers, and a series of higher Street price targets in the mid US$30s to low US$40s as key drivers.

Analyst Commentary

Street research on Applied Digital has recently concentrated on its AI data center build out, long term power agreements, and large customer contracts. Most firms are highlighting the size and duration of new deals, the scale of planned capacity, and the role of power access in AI infrastructure as key parts of their thesis.

On the bullish side, several research notes reference Applied Digital's contracts and pipeline. One firm points to a 15 year, US$11b contract with CoreWeave and financing support from Macquarie and other partners as evidence that the company is gaining traction with hyperscale clients. Others flag the progress at Polaris Forge 1 and 2, an active 4 GW pipeline, and discussions with multiple hyperscalers across new sites as reasons they see room for continued execution if projects are completed and leased as expected.

There is also an emphasis on power as a core asset for AI data centers. One research note cites a US$40b acquisition of Aligned Data Centers backed by BlackRock and MGX through a US$100b AI Infrastructure Partnership as reinforcing the idea that control of power can be a key advantage. Applied Digital is grouped with other operators with larger power portfolios, existing colocation agreements, and data center developments that could be well placed if AI demand for high performance computing capacity remains strong.

Across these reports, analysts discussing Applied Digital often focus on three themes. First, the scale and timing of major projects such as Polaris Forge 1 and 2, including potential long term capacity up to 1 GW per site and references to 4 GW of longer term potential capacity. Second, access to capital, with some viewing structures like a US$5b MAM facility as an important tool for financing AI campuses while aiming to limit equity dilution. Third, the emerging customer roster, including CoreWeave and potential investment grade hyperscalers, that could influence how consistently facilities are leased over time.

Even in positive reports, analysts generally anchor their views in Applied Digital's ability to convert its development pipeline into operational assets with long term leases. The implied valuation in these price targets is tied to expectations for adjusted EBITDA margins, power utilization, and the pace at which current and future sites are built out and contracted.

Bearish Takeaways

Bearish analysts highlight that one research firm recently reduced its Applied Digital price target to US$35 from US$40, which signals some pushback on prior valuation levels even as they maintained a positive rating.
The most cautious commentary notes that recent quarterly results included a one time revenue contribution and that this has little impact on value, with the stock now seen as almost entirely dependent on future leasing to AI focused hyperscale customers, which could create execution risk if deals are delayed or renegotiated.
Some bearish analysts point out that many growth assumptions in Street models rely on successful build out and leasing of large projects such as Polaris Forge and new hyperscale sites, so any shortfall in utilization, timing, or financing terms could pressure both growth expectations and valuation multiples.
Cautious views also stress that while higher price targets cluster in the mid US$30s to low US$40s, these levels are sensitive to forecasted adjusted EBITDA margins and long term capacity ramps, so unexpected changes in project economics, power availability, or tenant demand could lead to further target cuts or more conservative rating stances.

What’s in the News

Completed and on-time Ready for Service for the second 50 MW phase at Building 1 of the Polaris Forge 1 AI Factory Campus in Ellendale, North Dakota, bringing that building to its full 100 MW critical IT load and marking completion of the first of three contracted buildings at the campus (Key Developments).
The Polaris Forge 1 milestone follows a US$5b lease with a U.S. based investment grade hyperscaler at the Polaris Forge 2 campus, bringing total contracted revenue across both North Dakota campuses to US$16b, tied to long term AI infrastructure development (Key Developments).
Signed a lease agreement with a U.S. based investment grade hyperscaler at the under construction Polaris Forge 2 campus near Harwood, North Dakota, covering 200 MW of critical IT load for AI and high performance compute over an estimated 15 year term and including a first right of refusal on an additional 800 MW, which represents the full 1 GW expansion potential of the campus (Key Developments).
With the new Polaris Forge 2 lease, total leased capacity with two large hyperscalers across Polaris Forge 1 and Polaris Forge 2 in North Dakota stands at 600 MW, tied to AI data center use cases (Key Developments).
At the November 5, 2025 annual meeting, stockholders approved a Certificate of Amendment increasing authorized common shares to 600,000,000, with a par value of US$0.001 per share, and the company filed this amendment the same day (Key Developments).

Valuation Changes

Fair Value Estimate moved from US$13.00 to US$36.00, indicating a large upward reset in the implied valuation range used in the model.
Discount Rate adjusted slightly from 9.23% to 9.23%, with only a very small numerical change in the assumed cost of capital.
Revenue Growth shifted from 75.35% to 79.55%, reflecting a higher modeled growth rate for future revenues.
Net Profit Margin revised from 2.56% to 32.67%, a very large step up in the assumed profitability on future earnings.
Future P/E moved from a very large multiple of 273.19x to 48.89x, implying a lower valuation multiple applied to projected earnings in the updated model.

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.

Have other thoughts on Applied Digital?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

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