Shares of Applied Digital (APLD 0.74%) are climbing on Monday, up 7% as of 2:56 p.m. ET. The jump comes as the S&P 500 and the Nasdaq Composite were both moving higher.
The artificial intelligence (AI) data center company's stock is still rising after it released its quarterly earnings that surpassed analysts' revenue targets. The company's top line grew 84% year over year to reach $64.2 million. Wall Street had expected $50 million.
The growth is fueled by what seems like an unquenchable demand for AI computation resources. In its press release, the company highlighted major developments demonstrating the strength of that demand, including a deal with the AI-first cloud computing company CoreWeave, potentially worth $11 billion.
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There are risks for Applied Digital and the data center build-out
Despite the bullish quarterly report, investors should be aware of the risks. The company currently has a heavy debt burden and will need to incur more borrowing at elevated interest rates or dilute its shareholders by issuing additional stock as it funds the building of expensive data centers. The potential for Applied Digital and the data center market is large, but so are the risks.
I would stay away from Applied Digital stock at this point.
