Applied Digital (NASDAQ:APLD) stock has been on a roller-coaster ride this year. However, the past few months have been quite painful for this artificial intelligence (AI) infrastructure specialist.
Applied Digital stock has pulled back 45% from the 52-week high it reached almost three months ago. However, a closer look at the company's surging growth and the bright prospects of the AI data center infrastructure market suggests that the recent pullback in this stock could be a buying opportunity.
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Let's look at the reasons why.
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The market is underestimating Applied Digital's growth potential
Applied Digital is in the business of designing, building, and operating data centers designed to handle AI and high-performance computing (HPC) workloads. This puts the company right in the middle of a lucrative growth opportunity.
Market research firm Dell'Oro Group estimates that global spending on AI data centers could exceed $3 trillion by the end of the decade, driven by the need to support the growth in AI workloads in the cloud. What's worth noting is that Dell'Oro has almost doubled its data center capex outlook for 2030 since January 2026.
It won't be surprising to see this estimate move higher in the future, as more companies integrate AI into their operations to unlock productivity gains. A report released by workplace advisory services provider Gallup earlier this year noted that 65% of employees using AI in organizations have reported a jump in productivity.
So, the massive addressable market that Applied Digital is poised to capitalize on could get even bigger in the future. The good news is that the company is positioning itself to capitalize on the tremendous opportunity in this market. The company posted a 167% increase in revenue in fiscal 2026 (ending May 31) to $611 million. Importantly, it also reduced its diluted loss per share by 22%.
Applied Digital's growth rate could accelerate substantially in the future, given its robust lease revenue pipeline. Applied Digital has leased out 1.4 gigawatts (GW) of data center capacity across its five data center campuses. The company estimates that these leases will generate $36 billion in lease revenue across 15 years under the base contractual term.
Importantly, Applied Digital has started delivering the data center capacity, which will help it convert the lease revenue pipeline into actual revenue. The company estimates that it will complete delivery of the entire 1.4 GW of the contracted data center capacity by the second half of 2028. What's more, Applied Digital notes that the renewal options included in these lease contracts could take its potential long-term lease revenue to an impressive $86 billion.
But even if Applied Digital's customers don't exercise the renewal options, which seems quite unlikely amid the booming data center demand, its annual revenue run rate could be around $2 billion over the next 15 years. That's a conservative estimate, as the company is looking to add new data center campuses, in addition to increasing capacity at existing campuses.
So, Applied Digital's top line could jump substantially from its fiscal 2026 levels, and that's precisely what analysts are expecting.
The terrific top-line growth will send the stock soaring
The $2.72 billion revenue estimate for fiscal 2029 points to a jump of almost 4x in Applied Digital's top line from fiscal 2026 levels. Such impressive growth explains why this AI stock is trading at a relatively expensive 12 times sales, while the U.S. tech sector has an average sales multiple of 7.4.
The good news is that the recent pullback in Applied Digital stock has made it relatively inexpensive to buy right now, as it was trading at over 38 times sales at the end of May. Assuming Applied Digital trades at the U.S. tech sector's average sales multiple after three years and its revenue reaches $2.72 billion in fiscal 2029, its market cap could increase to $20 billion.
That's a potential upside of 156% from current levels. So, investors looking to buy a top growth stock to capitalize on the AI data center boom should consider using the pullback in Applied Digital to buy more shares before it goes on a bull run.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
