We recently compiled a list of the 10 Best Emerging Tech Stocks to Buy Now. In this article, we are going to take a look at where Applied Digital Corp. (NASDAQ:APLD) stands against the best-emerging tech stocks to buy.

Tech Industry’s Dominance is Here to Stay

Despite the recent market volatility of September, tech stocks remain a promising investment opportunity due to their strong earnings, potential for growth driven by AI capex investments, and solid financial fundamentals.

While quite a few analysts think it’s essential to diversify your portfolio away from tech to manage risks, especially in the middle of such a fluctuating market, the sector offers significant potential for long-term sustainable returns.

We recently covered UBS Global Wealth Management head of Americas Asset Allocation Jason Draho’s opinion in another article, 10 Best Tech Stocks To Buy Right Now Under $10. He thinks that while a balanced portfolio is essential for consistent long-term gains, tech stocks should not be shied away from for the rest of 2024. Here’s an excerpt from that article:

“While he’s optimistic about the technology sector, he acknowledged that the volatility will likely persist due to concerns about export controls and AI monetization. However, several factors make this sector attractive for the rest of the year. First, companies reported strong earnings results, although they may not be as spectacular as desired. Second, the AI capex investment story has potential upside for next year. Third, from a portfolio perspective, these companies are high-quality with solid earnings and balance sheets.

He thinks that this market volatility is acyclical. The recent sell-off in the tech sector was not primarily due to economic concerns but rather to sector-specific issues. Despite this, tech giants will continue to benefit from the AI capex investment story. While there may be short-term challenges, the long-term outlook for these companies remains positive. Focusing on the tech sector, rather than the broader MAG 7, is a better strategy for investors seeking to capitalize on the AI boom.”

Just last week, Mad Money host and former hedge fund manager Jim Cramer discussed his perspective on investing in Big Tech stocks during market downturns.

He believes that major technology firms, which are integral to ongoing robust trends like data centers and accelerated computing, should be viewed as attractive buying opportunities when the market weakens, instead of the opposite sentiment. So, when markets face a pronounced slow growth, tech stocks, particularly the large-cap leaders, are something to invest in, not divest from.

Cramer pointed out that September is historically the weakest month for the market, with consistent profit-taking. But, he sees this as a circular argument rather than a sign of an economic downturn. He believes the broader selling pressure in September is due to tech stocks meeting but not exceeding expectations.

On Wednesday, Chris Verrone, a strategist at Macquarie, in a discussion about buying financial stocks when they enter an oversold condition, also talked about the underperformance of the tech sector, especially the larger, established companies due to their perceived status as bond substitutes.

Verrone suggested that rate cuts could boost cyclical sectors, but experience shows mixed results. While tech has been a leader, other sectors like consumer discretionary and staples have also shown strength.

He believes that the market’s leadership changes are due to long-term planning. He notes that larger tech companies might be struggling because they are perceived as safer investments, similar to bonds. According to him, financials have performed well this year and are a potential investment opportunity, especially given their current oversold state. However, the financial sector typically performs better in the late fall.

Methodology

To compile our list, we used the Finviz stock screener to screen for technology companies with a market cap between $250 million and $1 billion. We then selected 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.

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 Corp. (NASDAQ:APLD)

Market Capitalization as of September 11: $924.17 million

Number of Hedge Fund Holders: 29

Applied Digital Corp. (NASDAQ:APLD) is a technology company that specializes in providing digital infrastructure solutions and cloud services, focused on building and operating data centers. It aims to use its expertise in data center infrastructure and energy management to support the growing demand for digital assets and HPC services.

There were 29 hedge funds long in Applied Digital Corp. (NASDAQ:APLD) in the second quarter, with a total stake value of $176.2 million.

Revenue for fiscal Q4 2024 surged to $43.7 million from $22 million in fiscal Q4 2023, driven by increased data center capacity and cloud services. This revenue was up 98.29% year-over-year. Data center hosting generated $26.9 million, while cloud services contributed $16.8 million. However, there was still a loss per share of $0.52.

The cost of revenue rose to $46.3 million from $15.9 million due to higher energy costs (from increased megawatt usage), depreciation/amortization, and personnel expenses related to business growth.

Applied Digital Corp. (NASDAQ:APLD) has made substantial progress towards securing a lease agreement with a Fortune 500 company which will stretch over a decade for its Ellendale campus. HPC data centers are expanding, with 400 megawatts under development and a new 100-megawatt facility in Ellendale nearing completion. It’s marketing additional campuses totaling 1.4 gigawatts, all with power available in 2026.

There were, however, challenges due to power outages at our Ellendale facility, which caused the loss per share mentioned earlier. The company has replaced transformers and now has 286 megawatts of capacity for blockchain clients across North Dakota locations.

Despite recent challenges, the company remains optimistic, while focusing on long-term growth. It made strides in cloud services secured a major hyperscaler partnership for its Ellendale data center and has a clear vision for expanding its HPC data center portfolio. With ongoing development, it’s well-positioned for success.

Overall APLD ranks 1st on our list of the best emerging tech stocks to buy. While we acknowledge the potential of APLD as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the stocks on our list 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.