Applied Digital (APLD) After The 15 Year AI Lease And The Valuation Debate

Applied Digital (APLD) is back in focus after signing a 15 year lease for 210 megawatts of IT load at its Delta Forge 2 AI campus, securing multibillion dollar contracted revenue with a new institutional holder entering the stock.

See our latest analysis for Applied Digital.

The lease news comes during a period of pressure on Applied Digital’s share price, which is down 40.68% over the past 90 days and 9.54% over the past 30 days. Over a 1-year period, the total shareholder return is 69.53%, and the 3-year total shareholder return is about 4.6x.

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Applied Digital now has a long dated AI lease and a share price that has fallen sharply, while analyst targets sit far higher. Where does fair value appear more anchored as the valuation work starts to stack up?

Most Popular Narrative: 62.9% Undervalued

Applied Digital’s most followed narrative points to a fair value of $73.36 compared with the last close at $27.21. That gap rests on some punchy growth and profitability assumptions that investors will want to understand before leaning on it.

The analysts have a consensus price target of $73.36 for Applied Digital based on their expectations of its future earnings growth, profit margins and other risk factors.

However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $106.0, and the most bearish reporting a price target of just $40.0.

Read the complete narrative.

The valuation story for Applied Digital rests on very rapid revenue expansion and a move from losses to positive margins, all compressed into a relatively short timeframe. The narrative leans on a single earnings target years out, plus a future P/E multiple that is many times higher than typical IT companies. Investors may want to consider which assumptions really carry the weight in that fair value and how sensitive the story is if they shift even slightly.

Result: Fair Value of $73.36 (UNDERVALUED)

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

However, Applied Digital still faces concentrated hyperscaler exposure and rising debt, so any contract changes or slower utilization could quickly challenge this upbeat fair value story.

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

Another View on Applied Digital’s Valuation

The first fair value estimate for Applied Digital leans heavily on long term growth and future profitability. A simpler cross check looks at today’s P/S of 13x versus 6.3x for peers, 1.6x for the wider US IT industry and a fair ratio of 11x. That premium suggests less margin for error if growth or margins come in lower than expected. How comfortable are you paying above both peers and the fair ratio for this story to play out?

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

Next Steps

If this mix of optimism and concern around Applied Digital feels familiar, now is the moment to check the data yourself and decide where you stand. To see the balance of potential upside and downside in one place, review the 1 key reward and 3 important warning signs

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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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