What the new Delta Forge 2 lease means for Applied Digital

Applied Digital (APLD) just signed its third 15 year lease at the Delta Forge 2 AI campus with a high investment grade hyperscaler, adding 210 MW of IT load and lifting contracted revenue to about US$36b.

The deal follows a burst of activity in which three large site leases totaling 810 MW were agreed in roughly 50 days. This leaves you with a stock backed by five contracted campuses and a long dated revenue pipeline tied to AI infrastructure demand.

APLD’s share price has climbed 57.9% over the past 90 days and delivered a very large 1 year total shareholder return of about 2.8x, even after a 6.1% decline over the past month.

If this AI infrastructure story has your attention, it can be worth seeing what else is moving in the space and comparing APLD with 48 AI infrastructure stocks

APLD now trades around US$42.70 after a very large 1 year return, yet still sits well below the average analyst price target of US$71. Is the market overpaying for the AI story here, or still underpricing future growth?

Most Popular Narrative: 19.1% Undervalued

Analysts following Applied Digital see a fair value of $52.80 per share, compared with the recent $42.70 close, and anchor that view in long dated AI leasing 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 is baked into that fair value gap? The narrative leans on rapid top line expansion, a sharp margin swing, and a rich future earnings multiple.

Result: Fair Value of $52.80 (UNDERVALUED)

However, the story can change quickly if the debt funded build out strains cash flow, or if a major hyperscaler contract is delayed or renegotiated.

Another Angle on Valuation

The analyst fair value of $52.80 suggests Applied Digital is 19.1% undervalued, but the current P/S of 38.2x presents a tighter picture. That is much richer than the US IT industry at 1.8x, peers at 7.8x, and even the 27.3x fair ratio indicated by our model.

In practice, that gap means a lot of future growth is already reflected in the price, so any disappointment in execution or sentiment could affect the stock more than a cheaper peer. Do you see that as acceptable risk for exposure to this AI infrastructure build out, or is the bar simply set too high?

Next Steps

If the optimism and caution in this story feel finely balanced, it can be worth checking the underlying data yourself and forming a clear view. To see both sides of that equation in one place, take a closer look at the 1 key reward and 4 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.