APLD's 25% Surge on $50M Financing Masks Deep Financial Risks and Overvaluation

What happened

Applied Digital's stock surged over 25% on February 6, 2026, after announcing $50 million in senior secured financing for its Polaris Forge 2 data center, reflecting market optimism about its AI infrastructure build-out. This financing supports the company's capital-intensive projects, which include long-term leases with tenants like CoreWeave and an investment-grade hyperscaler, anchoring a $16B+ backlog. However, the DeepValue report reveals that APLD operates with severe financial strain, including $2.35 billion in 9.25% senior secured notes, negative interest coverage of -2.1x, and negative free cash flow of -$568M as of November 2025. The $50 million injection is trivial relative to its massive debt and ongoing capital needs, failing to address core vulnerabilities like customer concentration and execution risks. Despite the price jump, APLD's valuation at $33.88 already prices in perfect execution while ignoring the high probability of delays or financing hiccups.

Implication

First, the $50 million financing provides minimal relief against APLD's $2.35 billion debt load and does not improve its negative interest coverage. Second, the company remains critically dependent on timely ramp-up of Polaris Forge campuses and the solvency of concentrated tenants like CoreWeave. Third, any project delays or neocloud financing stress could force equity dilution or asset sales, eroding per-share value. Fourth, APLD's stock behaves as a high-beta AI proxy, making it vulnerable to sentiment shifts rather than fundamental improvements. Fifth, with the stock above the attractive entry point of $24 and nearing the trim target of $45, investors should reduce exposure or wait for a significant pullback.

Thesis delta

The new financing does not shift the investment thesis, which remains a POTENTIAL SELL due to APLD's overvaluation and unaddressed financial risks. It reinforces the view that minor positive news can drive volatility but fails to mitigate core issues like high leverage and negative profitability. The thesis still hinges on flawless execution over the next 6-18 months, with downside risks outweighing upside potential.