Applied Digital (APLD) just released third quarter results that combine strong top line expansion with ongoing losses, providing a fresh data point on how the AI data center build out is affecting the business.

The stock has been volatile, with a 16.6% 7 day share price return and 24.1% 30 day share price return, yet a 9.2% 90 day decline, while the very large 1 year total shareholder return suggests momentum has been building over a longer horizon.

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With the share price at US$32.19, a very large 1 year return, and a sizeable gap to the average analyst price target of US$50.09, you have to ask: is there still a buying opportunity here, or is the market already pricing in future growth?

Most Popular Narrative: 35.7% Undervalued

With Applied Digital last closing at $32.19 versus a narrative fair value of $50.09, the current price sits well below what this widely followed model implies.

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 kind of revenue trajectory, margin shift, and future earnings multiple would need to hold for that fair value to make sense? The narrative leans on rapid top line expansion, a clear timeline for profitability, and a valuation multiple more often associated with high growth IT names. The full story connects those assumptions into a single path that has to play out almost exactly as modeled.

Result: Fair Value of $50.09 (UNDERVALUED)

However, this hinges on smooth execution, and heavy debt, plus reliance on a few large hyperscaler and crypto customers, could quickly challenge that optimistic setup if anything wobbles.

Another View: Rich Sales Multiple Raises a Caution Flag

While the narrative fair value presents Applied Digital as 35.7% undervalued at $50.09, the current P/S of 28.8x tells a very different story. That is far above the US IT industry at 1.8x, peers at 5.7x, and even the fair ratio of 16.4x. This raises the question of whether the bar is being set uncomfortably high.

Next Steps

With such mixed signals on value and expectations, this is a good time to pull up the underlying numbers yourself and decide how comfortable you are with both the downside and upside. To weigh those trade offs properly, start with the 1 key reward and 5 important warning signs.

Looking for more investment ideas?

If you are serious about building a stronger portfolio, this is the moment to widen your search and see what else the market might be overlooking.

• Spot potential value plays early by scanning 63 high quality undervalued stocks that combine appealing pricing with quality fundamentals.
• Build a more resilient core by checking out solid balance sheet and fundamentals stocks screener (41 results) that may better handle tough conditions.
• Add targeted income ideas to your watchlist by reviewing 13 dividend fortresses that could complement growth focused positions.

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.