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Applied Digital Corporation APLD shares have plunged 23.5% over the past three months, underperforming the broader Finance sector’s growth of 4%.
This steep decline raises the question: Should investors cut their losses and exit, or is it worth holding on to? While the near-term headwinds are real, the long-term growth story for Applied Digital remains intact, making a strong case for holding the stock.
APLD Three-Month Price Performance
Image Source: Zacks Investment Research
Reason Behind Applied Digital’s Struggle
Applied Digital’s recent decline stems from the broader market weakness rather than any company-specific issue. The stock witnessed a massive sell-off in January after Chinese AI startup DeepSeek released a competitive AI model that requires lesser powerful hardware.
Investors drew the wrong conclusions that the demand for powerful hardware will not be like as previously forecasted. As Applied Digital’s data centers are specialized in providing computing services for AI applications, investors turned cautious about its growth prospects.
APLD’s recent decline has also stemmed from a widespread sell-off in tech stocks in February, triggered by fears of escalating trade tensions and slowing economic growth, which jolted the entire sector. Companies that have benefited most from the AI boom, like Applied Digital, are now experiencing valuation corrections.
APLD’s Valuation Looks Lofty
APLD stock is trading at a premium currently, as suggested by the Value Score of F. Despite its recent plunge in stock price, the company still trades at a high forward 12-month price-to-earnings (P/S) ratio compared to the industry.
Image Source: Zacks Investment Research
However, not everything is gloom and doom for Applied Digital.
APLD Grows on the Back of Traction in Data Center
Applied Digital’s data center segment, which provides energized infrastructure services to crypto mining customers, accounted for 83% of its total revenues in fiscal 2024, is benefiting from Bitcoin’s price surge that increased more than 23% in the past year, even hitting all time high of $103,332.30 on Dec. 4, 2024.
Applied Digital benefits from access to hundreds of MWs of low-cost energy and its expertise in building high-quality AI data centers. As AI models grow more complex, their rising power demands fuel APLD’s growth. Data center electricity consumption is expected to surge 125% by 2030, reaching 9% of total U.S. usage, giving APLD an upper hand in this market.
APLD is nearing completion of a lease agreement with a U.S.-based hyperscaler for its 100 MW facility at the Ellendale HPC campus, which is currently under construction. This 369,000+ sq. ft. state-of-the-art facility is tailored for HPC applications, including AI.