Shares of Applied Digital (APLD +11.93%) flew higher this week, finishing up 34.5%. The spike came as the S&P 500 and the Nasdaq-100 were up 1.6% and 1.9%, respectively.
The artificial intelligence (AI) data center company saw its shares jump this week after a massive deal was announced between Microsoft and AI cloud provider Nebius, indicating that data center demand remains white-hot.
NASDAQ: APLD
Key Data Points
Nebius and Microsoft team up
In what is one of the largest data center deals to date, Microsoft has agreed to pay Nebius $17.4 billion over the next five years for AI infrastructure. Speaking of the deal, Nebius CEO Arkady Volozh said that he expects more deals like it and that the agreement will "help us to accelerate the growth of our AI cloud business even further in 2026 and beyond."
This echoes comments from rival CoreWeave's CEO on CNBC, who said that AI companies "can not get enough compute" and that demand continued to be strong. The bullish news helped lift shares of companies across the market involved in AI data center building, including Applied Digital.
Image source: Getty Images.
Demand is hot, but risks remain
The opportunity in AI data centers is enormous, but the risks are too. Applied Digital is already carrying substantial debt and faces an unenviable choice to keep up with demand: Borrow more money at punishing interest rates or dilute existing shareholders.
There is a serious risk here that demand will cool and companies like Applied Digital will get left holding the bag. The risks are too great here, and I would stay away from Applied Digital stock -- as well as CoreWeave stock, for that matter.
