APLD's Rally to 52-Week High Masks Deep Financial Strains, DeepValue Advises Caution

What happened

Applied Digital's stock has surged to near 52-week highs, driven by investor optimism over its long-term AI data center leases with CoreWeave and other hyperscalers. This rally reflects a market narrative positioning APLD as a core AI infrastructure beneficiary, despite its history of GAAP losses and extreme customer concentration. The DeepValue report notes that at $33.88, the equity already prices in flawless execution of its $16B+ backlog and rapid ramp-up of Polaris Forge campuses. However, underlying financials reveal negative interest coverage of -2.1x, $2.35B in high-coupon debt, and persistent free cash flow deficits, underscoring significant leverage and profitability challenges. The Zacks article highlights the stock trades at a sharp premium, echoing DeepValue's view that current valuations offer limited margin of safety given execution and financing risks.

Implication

The stock's elevated price assumes perfect ramp-up of AI leases, but any project delays or tenant issues could lead to sharp corrections. High debt costs and negative interest coverage make APLD sensitive to credit market shifts, potentially forcing dilutive equity raises. Customer concentration risks persist, with revenue heavily tied to a few tenants, amplifying downside if AI demand falters. Key near-term catalysts, like the 900MW hyperscaler deal, are critical but likely priced in, offering limited upside surprise. Given DeepValue's POTENTIAL SELL rating, investors might wait for lower prices or clearer profitability improvements before adding exposure.

Thesis delta

The new article confirms the stock's elevated valuation, reinforcing DeepValue's thesis that APLD is trading at a premium with heightened execution risk. No material shift in the underlying assessment is warranted; investors should remain cautious and prioritize risk management over momentum chasing.