Applied Digital (APLD): Evaluating Valuation After Securing $5 Billion Hyperscaler Lease for AI Infrastructure Expansion

Applied Digital has landed a $5 billion, 15-year lease with a major hyperscaler for 200 megawatts of IT capacity at its Polaris Forge 2 campus. The deal lifts the company’s total leased capacity in North Dakota to 600 megawatts and highlights strong demand for AI and high-performance computing infrastructure.

See our latest analysis for Applied Digital.

Momentum has been remarkable for Applied Digital, with a sharp rally in recent months fueled by its strategic shift to AI infrastructure and a string of multi-billion-dollar lease deals. After a blockbuster 1-month share price return of 42.6% and an eye-popping year-to-date climb of over 328%, investors are clearly responding to the company's ambitious expansion projects. Still, short bouts of volatility have emerged after insider selling and sector-wide worries about policy risks, reminding the market that rapid growth stories can come with heightened swings. Over the long term, the 1-year total shareholder return sits at 315.8%, and the dramatic 3- and 5-year total returns highlight just how much the company's transformation has paid off for early backers.

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With shares soaring and multiple high-profile deals announced, the question now facing investors is clear: is Applied Digital still undervalued after its incredible run, or has the market already priced in all that future growth?

Most Popular Narrative: 23.5% Undervalued

With Applied Digital's narrative fair value set notably higher than its last close, market watchers are weighing whether strong growth projections warrant this premium. The following quote from the most popular narrative captures one of the catalytic drivers behind this outlook.

The company’s focus on locating campuses in the Dakotas enables access to abundant, low-cost, and renewable power, with optimized liquid cooling and energy efficient designs (projected PUE of 1.18 and near-zero water consumption), significantly lowering operating costs per megawatt and providing a long-term net margin advantage in a market that increasingly prioritizes sustainability.

Read the complete narrative.

Curious how this strategic cost advantage feeds into sky-high future margins? The blueprint reveals aggressive profit expansion and significant growth bets not everyone expects. Ready to see what other bold assumptions drive the valuation? Unpack the numbers and tensions fueling this bullish perspective inside the full narrative.

Result: Fair Value of $43.70 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, ongoing volatility in crypto markets or execution missteps on large leases could quickly challenge these bullish projections and reshape sentiment around Applied Digital.

Find out about the key risks to this Applied Digital narrative.

Another View: High Book Value Signals a Caution

While the fair value model points to Applied Digital being undervalued, a different picture emerges when you look at the price-to-book ratio. At 9x, Applied Digital trades well above the US IT industry average of 2.8x and the peer average of 2.2x, which suggests the stock is priced at a significant premium to its tangible assets. For investors, this means the market is demanding a lot of future growth and profitability from the company, which raises the stakes if expectations are not met. Could this premium prove justified, or is there a risk that reality falls short of the market's optimism?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Applied Digital Narrative

If you'd rather investigate the numbers firsthand or trust your own analysis over consensus, you can build your own view in just a few minutes as well. Do it your way

A great starting point for your Applied Digital research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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