Applied Digital's stock gains on possible hyperscaler deal
Applied Digital (APLD) delivered second-quarter earnings on Wednesday that easily beat Wall Street's expectations.
But the following rally might have something more to do with a potential new opportunity on the horizon.
In a statement addressing the company's Q2 performance, Applied Digital chairman and CEO Wes Cummins noted that the company had "already secured two hyperscalers" in the North Dakota.
But then he hinted that the company is nearing a potentially third deal, saying that its is "in advanced discussions with another investment-grade hyperscaler across multiple regions, including additional locations in the Dakotas and select southern U.S. markets."
These advanced talks are focused on three sites totaling 900MW, with each being scalable to 1GW.
"While there can be no assurance of future contracts, we believe we are well positioned to begin construction in the near term on these new sites,” Cummins added.
Applied Digital reported $126.6 million in revenue for the second quarter, which was nearly 56% better than analyst expectations of $81.2 million.
The company also reported a flat earnings per share, while Wall Street had expected a loss of 21 cents a share.
Its stock gained 8.1% on Thursday. It has surged nearly 267% over the past 12 months.
Wall Street sees potential deal easing bubble concerns
In a client note on Thursday, Citizens analysts, led by Gregory Miller, maintained an Outperform rating on APLD shares and reiterated a $40 price target.
Miller flagged Cummins' assertion that the company was in "advanced talks" with an investment-grade hyperscaler.
He noted that the firm remains "somewhat concerned that the company could easily build expectations for leasing that could require prolonged duration to close."
Miller also pointed to the deal that Applied Digital signed in June with CoreWeave (CRWV), suggesting that it took an extended period of time to close.
However, if this potential deal closes in "a more timely fashion" than the one it inked with CoreWeave, then "we believe the close would represent yet another indication that leasing activity is accelerating at a time when the press broadly questions such investments," Miller said.
One could argue that the questioning of "such investments" in data centers is not just coming from the media, but also from investors.
This was shown in the global selloff of AI related stocks at the end of last year, including Oracle tumbling more than 40% from its high in September and CoreWeave plunging 60% from its all-time high in July.
However, if Applied Digital lands another deal soon, Miller sees it potentially changing the narrative around the AI bubble fears.
"Should this pace of activity continue, we believe many of the companies in this subsector that are capable of delivering powered capacity in 2026 and 2027 harbor significant upside to their respective stock prices," he said.
Meanwhile, Craig-Hallum analysts, led by George Sutton, maintained a Buy rating on Applied Digital's stock on Thursday, while raising their price target slightly to $40 from $39.
Sutton said that if the company lands the newest deal, it could give Applied Digital "several years of massive growth," specifically when combined with its current hyperscaler deals at Polaris Forge 1 and Forge 2.
"Management was quite clear (as others in the space have suggested to us) that demand is not the limiting factor, it is instead the ability to scale rapidly over multiple campuses to remain on the list of those able to deliver on time and on budget," Sutton said.