Applied Digital (APLD 0.23%) is a leading designer and builder of data centers that has seen its stock rocket around 250% year to date at the time of writing. It's normal to look at a monster run like that and believe you missed the boat, but there's one reason investors should look at the stock's climb as a signal to get on board.
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Applied Digital stock is a bargain
The stock jumped in early June when Applied Digital announced a deal to provide 250 megawatts worth of data center capacity for leading artificial intelligence (AI) hyperscaler CoreWeave. This will generate about $7 billion in revenue for the company over a 15-year term.
This is just the beginning. Microsoft just recently signed a multibillion-dollar deal with Nebius for more data center capacity. Applied Digital will get its share of deals.
The problem for hyperscalers like CoreWeave and Microsoft isn't getting access to chips but getting access to data centers. Data center capacity could be in limited supply down the road because of power shortages. Applied Digital has secured power sources for its data centers, which is becoming a valuable commodity. Management revealed on its last earnings call that it had completed diligence and onboarding with two more investment-grade hyperscalers in North America. It just broke ground on building a new $3 billion data center campus in North Dakota.
CEO Wes Cummins believes the company can achieve $1 billion in operating profit in the next three to five years. This is why it's not too late to buy the stock. Applied Digital's current market cap is just $7 billion, implying a cheap multiple on the company's future profit potential.
