Applied Digital (APLD 3.61%) has been one of the best stocks to own in 2025, rising around 260% so far this year although it has been incredibly volatile, rocketing up and down since October. Applied Digital is another way to play the artificial intelligence buildout, and so far, it has been an excellent investment.
However, we can't go back and capture those stellar 2025 returns. Instead, investors need to analyze whether Applied Digital is set for another strong 2026, or if there could be some headwinds brewing in this industry that cause issues. Let's take a look and see if Applied Digital is set to double once again in 2026. The answer may surprise you.
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Applied Digital is growing rapidly
Applied Digital is a data center company that designs, builds, and operates data centers. It leases out some of this computing power to various vendors, including CoreWeave. It operates these data centers in North Dakota, and in October, it announced that its first 100-megawatt building at its Polaris Forge 1 campus was complete. This is just the first part of the buildout of this building, as Applied Digital will grow this facility to 400 megawatts. Over the course of the 15-year lease, Applied Digital will generate $11 billion from CoreWeave as a tenant.
NASDAQ: APLD
Key Data Points
It has another data center in North Dakota, where it announced a $5 billion lease for 200 megawatts over another 15 years. It also holds the first right of refusal for another 800 megawatts at the Polaris Forge 2 Campus, should it need that capacity when the expansion is complete. While Applied Digital didn't name this client, it did note that it was "investment grade," which likely means it's a recognizable name in the generative AI field.
All this adds up to phenomenal growth. In its fiscal 2026's first quarter (ended Aug. 31), revenue was up 84% year over year to $64 million. However, this buildout is coming at a cost, with its net loss coming in at $28 million. That shouldn't be surprising, and investors shouldn't want profits right now, as it's too important to capture clients in the buildout stage, rather than trying to monetize them.
Applied Digital is having a great year, and if we see more announcements like this in 2026, the stock will likely perform well as a result. But is the price worth paying?
Applied Digital's stock is expensive
While Applied Digital's rapid 84% revenue growth is impressive, it falls short of the stock price performance. This indicates that the valuation has expanded dramatically, which is exactly what's going on.
APLD PS Ratio data by YCharts.
For most of the past two years, Applied Digital stock has traded at a mid-single-digit price-to-sales (PS) ratio. Now, it trades like it's a hot software stock at nearly 30 times sales. The primary issue here is that Applied Digital's margins don't support a valuation like that.
Software stocks trade for 10 to 20 times sales because they have gross margins in the 80% range. Applied Digital's are much lower at around 15%. This means that Applied Digital's peak profit margin will be far lower, so it should have a lower stock price as a result.
Although Applied Digital is in a booming market, I think the stock is too expensive to buy at these levels. I'd rather own a company like Nvidia, which is providing the computing hardware that will go into one of Applied Digital's data centers. There's no telling how long the AI buildout will last, and I'd rather buy already profitable companies, rather than ones that have a long way to go to get there, like Applied Digital.
If the market's appetite for risk remains high in 2026, the stock may perform well. But that's far from a surefire bet.
