Applied Digital (APLD 7.91%) was up big last Friday after a strong earnings report with $64 million in revenue (up 84% year over year). Its share price climbed 16% that day and has increased by 345% on the year.
As a builder of artificial intelligence (AI) data centers, Applied Digital's services are in high demand. The increase in share price reflects that to an extent, but there's one important reason why Applied Digital stock could continue to outperform the market.
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Applied Digital is carving out a crucial role in the AI boom
Hyperscalers are investing heavily in AI data centers to meet the computing and power needs that AI technology demands. Tech companies spent $430 billion on data centers in 2024, and analysis from Dell'Oro Group projects that spending will hit $1.1 trillion in 2029.
Applied Digital focuses specifically on building bespoke AI data centers, which gives it a few competitive advantages. It's able to deliver data centers that better fit its clients needs, and it can do so quickly. Over the last two years, Applied Digital has cut its data center build times from 24 months down to about 12 months. It has also found ways to improve operational efficiency. Applied Digital chose Ellendale, North Dakota, for its Polaris Forge 01 campus because the state offers over 220 days of free cooling annually.
Earlier this year, Applied Digital finalized an $11 billion lease agreement with Coreweave. Considering projections on data center spending, Applied Digital has good odds of securing deals like this one with more AI companies. Even after its recent growth, this company's market cap is about $9 billion and it trades at 35 times sales. There's still plenty of room to grow here, so it's not too late to invest.
