We came across a bullish thesis on Applied Digital Corp. (NASDAQ:APLD) on ValueInvestorsClub by bluewater12. In this article, we will summarize the bulls’ thesis on APLD. The company’s shares were trading at $7.50 when this thesis was published, vs. the closing price of $9.11 on Jan 03.
A data center filled with the latest servers and networking equipment representing the company’s cutting edge security infrastructure.
Applied Digital Corporation designs, develops and operates digital infrastructure solutions and cloud services in high-performance computing (HPC) and artificial intelligence industries. The three primary segments include Data Center Hosting Business, Cloud Services Business, and HPC Hosting Business.
APLD has been a pioneer in accessing cheap electricity and infrastructure for crypto mining. The company enjoys tax incentives and capacity for more energy generation through solar/wind farms. This gives APLD the first-mover advantage in building AI data centers and is poised to aggressively pursue greenfield projects.
The short sellers have been punitive in their assessment of the stock because of delays in project implementations. The much-awaited contract with a hypescaler customer has been pending since April. APLD had to raise capital from Yorkville, an entity considered a lender of last resort. Amidst these negative narratives, the firm managed to raise $160 million from Nvidia, Related Companies, and institutional investors. It is only a matter of time before Ellendale, its mega data center project, starts drawing in customers. This 400MW project is expected to generate value worth $17-23 per share (undiscounted). There is a current backlog of 1.4GW and if APLD manages to tap into this shortfall, the expected value addition is $70.
The Digital Cloud segment is also underappreciated and offers a low-risk business opportunity. APLD purchases GPUs from Nvidia and leases them to customers, typically for 2-3 years. The first contract is sufficient to break even and the purchases are only made once the contract is set up. The capital infusion from Nvidia is a way of showing support to companies that can provide a stable ecosystem for growth in the future.
The potential for multi-fold value addition from Ellendale and the $8/share value from Digital Cloud (valued by assuming 10% of CoreWeave’s capitalization) makes the current price extremely attractive. A single hyperscaler customer should be sufficient to turn it into a multi-bagger.
While we acknowledge the potential of APLD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than APLD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
