Every market cycle has a point at which a stock ceases to be a stock and becomes a narrative. It is evident that Applied Digital, ticker APLD on the Nasdaq, has moved into that stage. The shares closed Friday at $45.87, down 4.5% for the day, but the chart over the last 12 months appears almost cartoonish, with a brief rise from under $7 to almost $49 before the inevitable wobble. That will be accomplished with a 542% run. A $18.2 billion lease will do the same.
A balance sheet can be subtly altered by the deal itself. Located just outside of Fargo in Harwood, North Dakota, Polaris Forge 3 is a new AI data center campus built on land the company already owned. A hyperscaler tenant brings its own chips and software, locking in 400 megawatts of critical IT load for a period of fifteen years. Long-term investors consistently highlight this aspect: steady cash flow that extends well beyond any actual peak in AI capital expenditures.
It’s difficult to ignore the fact that APLD was something completely different not too long ago. When the company was renting out rack space to bitcoin miners in Texas and the Dakotas three years ago, hashprice margins were virtually nonexistent. In order to free up megawatts, management began to wind down those contracts through 2024. Investors who were accustomed to cryptocurrency detested the change. They were mistaken. With terms measured in decades rather than quarters, AI colocation agreements carry margins that crypto hosting could never match.
Wall Street has taken notice. Last week, Compass Point raised its price target from $45 to $70 while maintaining a Buy rating. John Todaro of Needham went from $51 to $66, citing the Polaris Forge 3 structure’s resemblance to a previous Delta Forge 1 configuration. The JMP for citizens is $60. The stock was at $6.68 in May of last year, so it seems reasonable that the consensus has risen to about $57.67. Although there are still doubters—Wall Street Zen was downgraded in April, Weiss Ratings has a sell—the bull side is becoming more and more vocal.
However, there are these uncomfortable edges to the financial picture. Revenue of $126.6 million was reported in the fiscal Q3 figures, an actual EPS beat and an increase of about 139% year over year. However, Applied Digital continues to report a net margin that is more than fifty percent negative and a negative return on equity. Since there are no earnings to place beneath the P/E, it is meaningless. Insiders have also been selling; in late April, two directors sold a total of 22,500 shares for about $34, which is significantly less than the current price of the stock. It’s worth mentally filing away.
Then there’s the issue of concentration. An enormous counterparty results from an enormous lease. One hyperscaler now controls a sizable portion of forward revenue; this hyperscaler is reportedly connected to Nvidia-backed CoreWeave through related agreements. It costs roughly $10 million per critical megawatt, give or take, to build 400 megawatts of AI-ready capacity, which adds up to a multi-billion dollar capital expenditure bill. Debt, sale-leasebacks, and most likely additional equity issuance will be required for APLD. Even a small increase dilutes given the float. Be mindful of it.
North Dakota’s inexpensive electricity and permitting flexibility are doing a lot of quiet heavy lifting in this story as grid upgrade work is underway outside the Fargo site. Constellation Energy, Oklo, and even Vertiv on the equipment side are examples of indirect plays that frequently appear in nearby discussions. The entire situation resembles an early Tesla moment, which, depending on the year you’re recalling, can either be a compliment or a warning.
Investors appear to think that the runway, demand, and lease income are all real. Whether today’s price already assumes everything goes well is the question. Observing the fluctuations—a 25% decline in just three sessions, followed by a 20% recovery in a matter of days—gives the impression that this conviction is weaker than the headlines imply. This AI cycle’s infrastructure story may actually be Applied Digital. It may also be the most costly method of learning that.
