Applied Digital (APLD) is back in focus after reporting earnings that showed very large year over year revenue growth and continued losses, as its business shifts further toward AI focused infrastructure.

The Applied Digital share price is US$28.86 after a 1 day share price return that declined 3.38%, with the 90 day share price return down 30.04% even as the 1 year total shareholder return is 102.67%. This suggests long term momentum has recently cooled as investors digest the revenue surge, continued losses and new AI focused contracts.

If Applied Digital's shift toward AI infrastructure has caught your attention, this could be a useful moment to see what else is moving in that space through the 56 AI infrastructure stocks

Bulls point to Applied Digital's revenue surge and AI contracts, while bears focus on the ongoing losses and sharp 90 day share pullback. Which side does the current valuation evidence support next?

Most Popular Narrative: 61% Undervalued

Applied Digital's most followed narrative points to a fair value of $73.36 against the last close at $28.86. That gap hinges on some very bold long term assumptions about hyperscale leasing and AI infrastructure demand.

The accelerating industry need for high-density, geographically distributed data centers to support AI and machine learning workloads places Applied Digital in a favorable position, capitalizing on digital transformation trends that are set to drive ongoing utilization growth, improved asset values, and ultimately earnings expansion over the next several years.

Want to see what has to happen for that valuation to make sense? The narrative leans on rapid revenue expansion, a sharp profitability shift and a richer future earnings multiple. The exact numbers may surprise you.

Result: Fair Value of $73.36 (UNDERVALUED)

However, Applied Digital still faces meaningful risks, including heavy use of debt and dependence on a small group of hyperscaler customers, which could quickly reset this optimistic narrative.

Another View on Applied Digital's Valuation

While the analyst narrative points to Applied Digital being undervalued based on future earnings, the current P/S of 13.8x sends a different message. It is more than double the peer average of 6x and above the fair ratio of 11.1x, which points to meaningful valuation risk if expectations reset.

Next Steps

With Applied Digital showing both strong optimism and clear concerns in the narratives, it makes sense to review the underlying data yourself and move quickly. To get a balanced view of the trade off between its upside potential and the issues investors are watching, start with the 1 key reward and 2 important warning signs

Looking for more investment ideas beyond Applied Digital?

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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.