Applied Digital Corporation (NASDAQ:APLD) was trading at around $24 on October 5, down 3.88% on the day, and reports first-quarter results after the close on October 7.
Some 20.92% of its float is sold short going into that print. A fifth of the tradable shares betting against a company whose revenue grew 406.60% is the contradiction worth examining.
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The Growth Is Not in Question:
Revenue more than quintupled, reaching $611.31 million over the past twelve months. Growth like that usually means a company found a product nobody else sells. Here it means something simpler. Applied Digital builds the data center capacity AI workloads run on, and that capacity is leased faster than it can be poured.
Demand is not the variable. Hedge fund ownership rose from 39 to 59 in a single quarter, which is what conviction about an end market looks like. Nor is next year’s solvency. Cash of $1.59 billion and a current ratio of 4.01 cover what sits in front of the company.
So whatever the short sellers are betting on, it is not that the customers go away.
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What the Short Sellers Are Actually Short:
The case against sits in two lines of the cash flow statement. Operating cash flow was $89.69 million. Levered free cash flow was negative $4.96 billion.
The company collected almost nothing and spent close to five billion, which is roughly two-thirds of its entire market value in one year. That is not an operator’s cash flow statement. It is a builder’s, and builders consume cash until the buildings are let and paid for.
Where the money came from is the exposure. Debt stands at $5.1 billion against $1.59 billion of cash, so the construction is funded by lenders rather than by customers.
The capacity already running does not cover it. Operating margin is negative 48.22%, meaning Applied Digital loses money on the business it has before spending a dollar on the business it wants.
Beta of 6.00 is the market pricing that combination. These shares move six times as hard as the index, which is leverage meeting an unproven margin. Applied Digital is still building what its customers already run.
APLD ranked third in our list of the 10 Stocks with High Short Interest and Improving Fundamentals. To see which stocks outranked it, click HERE.
The Valuation Case:
Sustainability turns on the leases rather than the demand. Capacity under construction earns nothing, and the $4.96 billion outflow has to be refinanced or repaid from leases that do not exist yet.
On price, the stock is ordinary against assets at 4.51 times book and expensive against everything the business currently produces. Enterprise value of $11.25 billion against a $7.74 billion market value means roughly a third of the purchase price is inherited debt.
The insider holding of 7.66% sits against short interest of 20.92%. The people running it own more than most management do, and the market is positioned against them. That split is unusual. Billionaire investors hold ten semiconductor stocks, and the list is here.
Conclusion:
The demand is real, revenue grew 406.60%, and $1.59 billion of cash means nothing breaks this year. Hedge fund ownership rose by twenty funds in a quarter. However, the company spent $4.96 billion it did not earn, funded by $5.1 billion of debt. It still loses money on the capacity it already operates. The short position is a bet on the funding rather than on the customers. The number to watch on Wednesday is the lease commitments, because that is what turns construction into revenue.
Market Sentiment:
Applied Digital Corporation was held by 59 hedge funds with a combined stake value of about $2.69 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 39 hedge fund holders with a cumulative investment value of around $1.30 billion in the previous quarter.
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This article is originally published at Insider Monkey.
