Applied Digital (APLD) moved into focus after announcing a 15-year take-or-pay lease with a high investment-grade U.S. hyperscaler for its Polaris Forge 3 AI campus, adding substantial contracted revenue visibility.

That long term lease announcement comes on the back of strong momentum, with a 30 day share price return of 54.62% and an 82.07% 90 day share price return. The 1 year total shareholder return is very large, suggesting investors see materially higher long term potential relative to where the stock traded a year ago.

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With such a sharp re rating, a large long term lease backlog, and analyst targets above the current US$49.65 share price, the real question is whether APLD still offers upside or if the market already prices in future growth.

Most Popular Narrative: 6% Undervalued

Applied Digital's most followed narrative pegs fair value at $52.80 versus the last close at $49.65. The story here leans toward modest upside with a focus on long duration AI infrastructure contracts.

The company has recently secured long term (15 year) leasing agreements with CoreWeave, a major AI hyperscaler, for its purpose built AI/HPC data center campus, Polaris Forge 1, representing a total of $7 billion in contracted revenue and a multi year, recurring, and predictable revenue stream that directly supports future revenue growth and cash flow stability.

Curious what turns those long leases into a higher fair value? The narrative focuses on rapid revenue expansion, a profit swing, and a rich future earnings multiple that assumes Applied Digital matures into a much larger, profitable AI infrastructure player.

Result: Fair Value of $52.80 (UNDERVALUED)

However, the story can change quickly if heavy debt funding strains cash flows, or if a major hyperscaler contract is delayed or renegotiated.

Another View: Pricing The Growth Story

While the fair value narrative points to modest upside, the current P/S ratio of 44.4x tells a different story. That multiple is very high compared to the US IT industry at 2.2x, the peer average at 8.8x, and even the fair ratio estimate of 27.9x, which suggests meaningful valuation risk if expectations cool.

Next Steps

If this mix of optimism and concern around Applied Digital leaves you undecided, you may want to quickly review the underlying numbers, commentary, and the 1 key reward and 4 important warning signs

Looking For More Investment Ideas?

If Applied Digital has sparked your interest, do not stop here. Fresh ideas often come from comparing a few strong alternatives side by side.

• Target steady compounding potential with companies that screen well on valuation and quality by reviewing the 46 high quality undervalued stocks.
• Prioritize resilience in tougher markets by searching for companies highlighted in the 64 resilient stocks with low risk scores.
• Spot tomorrow's potential standouts before the crowd by scanning the screener containing 22 high quality undiscovered gems.

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.