We recently compiled a list of the 10 Worst Artificial Intelligence Stocks to Buy Under $10. In this article, we are going to take a look at where Applied Digital Corporation (NASDAQ:APLD) stands against the other worst AI stocks to buy under $10.

With technology evolving at a dynamic speed, many companies have changed their way of carrying out operations as they focus on integrating AI into their complex and day-to-day activities. Integration of AI into business operations requires significant investment in infrastructure and specialized talent. Experts believe that 2022 was the year in which generative artificial intelligence (AI) exploded in the public’s consciousness, and in 2023, the technology started to take root in the business world.

Therefore, 2024 and the upcoming years are expected to be critical years for the future of Al, with researchers and enterprises planning to integrate this revolutionary technology into their operations.  Some of the current AI trends that are expected in the upcoming years include multi-modal Al, smaller language models and open-source advancements, GPU shortages, cloud expenses, regulation, copyright, and ethical AI concerns, among others.

Surge in Al Adoption

As per the McKinsey Global Survey on AI, ~65% of respondents have highlighted that their organizations continue to use gen AI, nearly double the percentage compared to the survey conducted earlier. Organizations have been seeing strong benefits from the use of generative AI, reporting both cost decreases and revenue jumps in the segments using AI technology.

The interest in gen-AI seems to have brightened the spotlight. McKinsey mentioned that, for the previous 6 years, adoption of AI by respondents’ organizations was hovering at ~50%. However, this year, the survey revealed that adoption increased to ~72%. Notably, the interest has been global in scope. The company’s 2023 survey highlighted that AI adoption didn’t reach 66% percent in any region. However, this year over two-thirds of respondents in nearly every region mentioned that their organizations are deploying this transformative technology. Industry-wise, the strongest increase was seen in professional services.

AI’s rapid evolution and its potential to shape the future continue to revolutionize several industries throughout the globe. As per a survey published on Forbes Advisor, the most commonly used AI cases in businesses consist of customer relations, cybersecurity, fraud management, digital personal assistants, inventory management, content production, and others. When discussing leveraging the top AI trends, businesses continue to rely on predictive analytics to make strategic decisions. For example, using predictive analytics in the manufacturing industry can help in predicting unexpected machine failures and costly breakdowns.

Another factor because of which AI has seen increased adoption is the deployment of multi-modal Al. It leverages machine learning trained on multiple modalities, like speech, images, video, and traditional numerical data sets. As a result, it helps in creating holistic and human-like cognitive experiences.

Investments in Al

Al investments have been ramping up at an unmatched speed. As per Goldman Sachs Economic Research, global investment in AI technologies should touch $200 billion by 2025. Making investments in generative AI provides potential economic growth and improves labor productivity by ~1% annually. Additionally, the investment in AI can peak as high as ~2.5% to ~4% of GDP in the US and ~1.5% to ~2.5% in other AI leaders.

Global corporate investment in AI saw a strong increase over the past decade. A Stanford University analysis estimated that the sum of assets and acquisitions from minority stakes, private investments, and public offerings came in at $934.2 billion from 2013 to 2022. Moreover, recent investment peaked in 2021, reaching ~$276.1 billion with the evolution of ChatGPT.

As per EY’s recent survey, ~30% of respondents highlighted that their business is planning to invest at least $10 million in AI next year. This demonstrates an increase from the current level of 16%. With the transition to the next phase of full-scale AI integration, leaders are required to develop a holistic strategy that recreates the entire enterprise ecosystem to create an AI-centric business model.

Our methodology

We compiled an initial list of 25 possible stocks by sifting through online rankings and ETFs. We then picked the 10 stocks that were the least popular among hedge funds and were trading at less than $10 per share. Finally, the stocks were ranked in the descending order of their hedge fund sentiment, as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Applied Digital Corporation (NASDAQ:APLD)

Number of Hedge Fund Holders: 29

Share Price As On September 19: $5.56

Applied Digital Corporation (NASDAQ:APLD) is a designer, builder, and operator of next-gen digital infrastructure, which is designed for Artificial intelligence (AI) and High-Performance Computing (HPC) applications, cloud services, and data center hosting.

Applied Digital Corporation (NASDAQ:APLD)’s stock price might be impacted due to its considerable debt obligations, with $67.2 million in debt repayments made in 2024. Despite securing loans and raising capital, its debt-to-equity ratio indicates increased reliance on borrowing. In early 2024, Applied Digital Corporation (NASDAQ:APLD) highlighted that it was experiencing installation delays as a result of networking components that were not delivered.  Most recently, the company saw a massive power outage at its 180 MW Ellendale facility because of bad transformers. As a result of such issues, selling the Bitcoin mining business to Marathon Digital wasn’t a surprise, and might be a signal of distressed business.

On the other hand, Applied Digital Corporation (NASDAQ:APLD) continues to make strides in developing its cloud services and data center hosting businesses. Moreover, it continues to work on securing financing and finalizing lease agreements for its high-performance computing (HPC) data center campuses. While the company was able to execute a letter of intent (LOI) with a U.S. hyperscaler for 400 megawatts at the Ellendale campus, it expects revenue growth over upcoming quarters. Its cloud AI business seems to be well-positioned for growth with the right financing structure. The company anticipates sequential improvements in its revenues as it enters 1Q 2025.

In FY 2024, Applied Digital Corporation (NASDAQ:APLD) saw its revenues increase by $110.2 million, or 199%, from $55.4 million in FY 2023 to $165.6 million in FY 2024. This growth stemmed from increased capacity across its 3 Data Center Hosting facilities.

B.Riley upped its target price on shares of Applied Digital Corporation (NASDAQ:APLD) from $8.00 to $9.00, giving the stock a “Buy” rating on 13^th June.

Overall APLD ranks 8th on our list of the worst AI stocks to buy under $10. While we acknowledge the potential of APLD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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 is originally published at Insider Monkey.