Since the close of trading on Friday, shares of the artificial intelligence data center company Applied Digital Corporation (APLD 12.69%) are trading roughly 24% lower, as of 3:12 p.m. ET Thursday. The company announced the issuance of senior secured notes and a drawdown from one of its funding partners.
Potential dilution and more debt
On Monday, Applied Digital announced its intention to conduct a private offering to raise $2.35 billion in senior secured notes due in 2030, the proceeds of which will be used to help fund construction costs related to its 100-megawatt (MW) and 150 MW data centers at its North Dakota campus. The notes add significant debt to the balance sheet and raise debt costs, which will affect financial results.
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Additionally, Applied Digital announced that it expects to draw an additional $787.5 million from its $5 billion perpetual preferred equity financing facility with Macquarie Asset Management, which the company disclosed previously. These funds will also be used to help fund the North Dakota factories. Perpetual preferred equity is structured with components of both debt and equity. It offers investors a nonvoting ownership stake in the company and the ability to receive fixed dividends in perpetuity.
NASDAQ: APLD
Key Data Points
Based on the initial agreement between APLD and Macquarie, it seems the fund receives a dividend payment of 12.75% per year. The facility also comes with common shares, meaning there is likely dilution each time Applied draws additional funding from Macquarie.
A bet on artificial intelligence
Applied Digital is in the red-hot AI data center space, which is in high demand from the hyperscalers. However, the company trades at a $6.64 billion market cap, is losing money, and currently has an annual revenue run rate of roughly $256 million. The company could be a big hit if the company gets the new data centers online and secures lucrative contracts, but right now, I'd keep positions small and speculative, considering the stock's run-up.
