Applied Digital Corp (NASDAQ:APLD)’s transformation from a crypto-mining/data-center hosting company to an AI infrastructure provider is beginning to reflect in its earnings. The company is enjoying robust growth fueled by rapid conversion of its data center footprint into artificial intelligence and high-performance computing infrastructure. Likewise, hyperscaler leases and tenant buildout are increasingly driving near-term revenue growth.
Shares have gained more than 20% year to date, with the stock remaining volatile and below some of its recent highs. The market is particularly focused on the company’s execution, financing, profitability, and timing of future cash flows. Sentiment and outlook for the stock are slowly changing, triggering prospects of a potential breakout after months of underperformance.
Applied Digital’s Improving Fundamentals
Robust revenue growth affirms why Applied Digital Corp (NASDAQ:APLD) is a compelling investment play on improving underlying fundamentals. The company delivered fiscal fourth quarter 2026 revenue of $258.7 million, up 407% year over year and topping estimates of $94.8 million. Similarly, full-year revenue was up 167% to $611.3 million. Adjusted earnings per share came in at $0.04 above expectations of a $0.22 loss.
The 407% revenue growth suggests the company is no longer a future AI story but a company that’s converting data center capacity into sales. The growth has come as the company shifts toward building large, power-dense data centers that it leases to hyperscalers and AI cloud companies, thereby securing key revenue streams.
The Data Center Hosting segment generated $38 million in revenue in Q4 FY2025. Revenue in the segment increased to $203 million as of Q4 FY2026, suggesting new leases are becoming bigger than Traditional Data Center Hosting, which was essentially flat at $37.3 million.
Applied Digital’s signing long-term hyperscaler leases, including a $7.5 billion deal at its Delta Forge 1 campus, underscoring the company’s ability to secure deals that bolster revenue streams as AI infrastructure assets move into operation. It has also inked a long-term lease with CoreWeave for its Polaris Forge campus, securing roughly $7 billion of contracted revenue over about 15 years.
In addition, it has approximately 1.4 GW in contracted critical IT capacity and $36 billion of contracted base-term lease revenues. Spread across five AI factory campuses, the base-term lease revenue provides greater revenue visibility than a typical data-center developer.
Key Investment Risks
While the investment opportunity is compelling amid the AI data center buildout, Applied Digital is also susceptible to significant risks that could affect its long-term prospects. For starters, the company is building power intensive AI infrastructure that requires enormous financing. Should equity financing become expensive or dry up, then the projects could be delayed, and returns could fall.
Dependence on a relatively small number of large customers for AI infrastructure leases poses significant dangers. Losing such a customer or if they experience payment problems could materially affect the company’s revenue base.
Additionally, APLD’s growth story is heavily tied to expanding AI computing demand. Its outlook could come under pressure on hyperscalers and AI companies reducing infrastructure spending.
Given that high revenue growth does not automatically translate to higher shareholder returns, the economics for long-term leases could deteriorate on cost increases. The company is also susceptible to stiff competition from big players with stronger balance sheets and potentially lower costs of capital. TeraWulf Inc. (NASDAQ:WULF) is one such company that is transitioning and expanding its business model in pursuit of AI/HPC opportunities.
Valuation and Hedge Fund Positioning
Most high-growth AI infrastructure companies look inexpensive based on future revenues. Applied Digital looks expensive on current revenue, but investors are effectively valuing the company on its future contracted cash flows and expected expansion rather than its current sales base.
The stock trades at a trailing price-to-sales multiple (P/S) of roughly 15x, significantly above the sector average of 3.5x. This is compared with roughly 56 times trailing sales for TeraWulf. APLD therefore trades at a lower sales multiple, but both valuations depend heavily on continued AI infrastructure demand and the successful development of large-scale data-center projects.
Meanwhile, Applied Digital Corp (NASDAQ:APLD) has a higher short percentage of float at 27.02% compared to 25.04% at Terawulf. The high short interest creates the possibility of additional volatility if improving fundamentals force bearish investors to reassess their positions, although short interest alone is not a catalyst for sustained gains.
Meanwhile, Applied Digital has relatively modest hedge fund holdings. As of the first quarter, 39 hedge funds held stakes in the company compared to 68 hedge funds for Terawulf, according to Insider Monkey’s database. Hood River Capital Management, Situational Awareness LP, and Value Aligned Research Advisors increased their stakes in APLD in the first quarter by 5%, 19%, and 19%, respectively.
Bottom Line
Revenue growing by 400% underscores Applied Digital’s transformation story from a crypto data center hosting company to an AI/HPC company benefiting from long-term hyperscaler leases. While the legacy hosting business continues to provide stable revenue, strong growth from the new HPC segment shows that its AI infrastructure strategy is beginning to show results.
Overall, Applied Digital Corp (NASDAQ:APLD) has moved beyond the early-stage AI infrastructure narrative, but the next phase of the investment case depends on execution: bringing contracted capacity online, controlling capital costs, and translating lease commitments into sustainable free cash flow.
While we acknowledge the risk and 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 and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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