Shares of Applied Digital (APLD +9.94%) have risen 265% year to date, driven by improving growth prospects in the data center market. Applied Digital is a leader in designing and building data centers for artificial intelligence (AI) and cloud services.
The power shortage for new data center build-outs has significantly raised the value of Applied Digital's data center pipeline, which could make recent gains just the beginning of a monster bull run over the next decade.
Let's see what this could all mean for investors considering the stock now.
Image source: Getty Images.
Why invest in this data center stock
While the growing demand for semiconductors has driven significant gains for top chip stocks in the past few years, there is an even greater need for power to run these massive chip clusters inside data centers. Deloitte estimates that AI data centers in the U.S. will consume over 100 gigawatts of power by 2035, potentially straining the power grid.
This limited power availability means that hyperscalers will ultimately need every available watt of data center capacity that Applied Digital can supply. It already has a 15-year, $7 billion deal with CoreWeave, which will provide the hyperscaler with access to 400 megawatts of capacity from Applied Digital's Polaris Forge 1 campus in North Dakota.
Management has stated that it has been in active discussions with other hyperscalers, suggesting that another major deal could be announced soon.
NASDAQ: APLD
Key Data Points
The company is expanding quickly to address this demand. Its Polaris Forge 2 data center site will offer 300 megawatts of power, with the potential to grow to 1 gigawatt. Management is targeting $1 billion of net operating income over the next five years, which makes its current market capitalization of $8 billion appear undervalued.
Assuming the company executes its plan to construct new data center sites on schedule, there is enormous upside for investors who can patiently hold the stock for the next decade.
