Applied Digital Corporation (APLD), a prominent player in the artificial intelligence (AI) infrastructure sector, is navigating a significant market event following the complete divestment of Nvidia Corporation's stake. Despite the immediate stock decline, industry analysts are divided, with some viewing this as a potential entry point for investors rather than a fundamental flaw in APLD's business model. This article delves into the details of Nvidia's exit, Applied Digital's recent financial performance, and expert opinions to help investors assess the future trajectory of APLD stock.
Applied Digital, headquartered in Dallas, Texas, specializes in the design, construction, and operation of digital infrastructure tailored for high-performance computing and AI workloads. The company commands a market capitalization of approximately $8.8 billion, providing essential data center hosting, GPU-powered computing, and infrastructure services for both crypto mining and AI applications. Its position at the heart of the AI boom has previously led to triple-digit returns for its stock, underscoring its significant market presence.
On February 18, APLD stock experienced a 4.9% drop after SEC filings revealed that Nvidia, an AI chip manufacturing giant, had liquidated its entire holding. Nvidia, which initially invested in 2024, previously owned 7,716,050 shares, valued at around $177 million. Such a move by a technology titan naturally raises questions in the market, prompting scrutiny from investors and analysts alike.
However, the consensus among several analysts is that Nvidia's departure does not necessarily signify a negative outlook for Applied Digital. Roth Capital, for instance, reaffirmed its "Buy" rating and maintained a $58 price target for APLD stock. The firm emphasized that this development does not alter Applied Digital's core business prospects, attributing the stock's dip to mere "headline risk" rather than operational weaknesses. Roth Capital's confidence is further supported by Applied Digital's recent advancements, including securing new co-location leases with CoreWeave (CRWV) and a major hyperscaler, with a third agreement anticipated soon.
Applied Digital's fiscal 2025 Q2 results, reported on January 7, exceeded market expectations. The company reported a remarkable 250.1% year-over-year (YOY) surge in revenue, reaching $126.6 million, significantly surpassing analyst estimates of $110.3 million. A substantial portion of this increase, approximately $85 million, was driven by its High-Performance Computing (HPC) Hosting Business. This strong performance led to an 8.1% and 18% increase in the stock during the two subsequent trading sessions.
The company's management highlighted the early completion and rapid energization of its Polaris Forge1 data center, which began generating lease revenue ahead of schedule, as a key factor in its strong quarterly performance. Adjusted net income reached $115 thousand, a significant turnaround from an adjusted net loss of $1.5 million in the prior-year quarter. Additionally, adjusted EBITDA saw a 229.7% increase from the previous year, reaching $20.2 million, and adjusted EPS registered $0, outperforming the expected loss per share of $0.21.
Looking ahead, executives are optimistic about continued expansion, with additional campuses expected to come online through 2026 and 2027 under long-term hyperscale leases. Analysts project a narrowing loss per share for Q3 fiscal 2026 by 37.5% YOY to $0.10, and a 55% improvement to a $0.36 loss per share for the full fiscal year 2026.
Roth Capital is not alone in its positive assessment. Northland also raised its price target on APLD stock from $40 to $56 last month, maintaining an "Outperform" rating. This adjustment followed what Northland described as "exciting commentary" during Applied Digital's Q2 earnings call, where management disclosed advanced discussions for up to three new sites totaling approximately 900 megawatts (MW) with a new investment-grade hyperscaler. The broader Wall Street sentiment is largely positive, with 12 out of 14 analysts assigning a "Strong Buy" rating, one a "Moderate Buy," and one a "Hold." The average price target of $49.15 suggests a potential upside of 69%, with the highest target reaching $99, indicating a potential gain of 241% from current levels.
In conclusion, while Nvidia's decision to sell its stake in Applied Digital caused an immediate market reaction, many analysts view this as a temporary blip rather than a long-term setback. The company's robust financial performance, strategic expansion plans, and strong endorsements from other financial institutions suggest a resilient business model with significant growth potential in the burgeoning AI infrastructure market. Investors may find this period of market adjustment to be a strategic opportunity to consider APLD stock.