Applied Digital (APLD 3.65%) stock clocked stellar returns in 2025, rising an incredible 215%. Investors have been buying shares of this digital infrastructure company hand over fist to capitalize on booming demand for artificial intelligence (AI) infrastructure.
Applied Digital is right in the middle of the AI infrastructure boom, as it designs, builds, and operates purpose-built data centers for high-performance computing (HPC) and AI workloads. Not surprisingly, its revenue and potential pipeline have been growing at an incredible pace.
However, investors may be wondering if it is a good idea to buy Applied Digital stock following the remarkable gains it clocked in 2025. After all, the stock is expensively valued right now and has witnessed some volatility of late, pulling back 36% from the 52-week high it hit in mid-October.
But the good part is that Applied Digital stock could regain its mojo once the company releases its fiscal 2026 second-quarter results (for the three months ended Nov. 30) on Jan. 7. Let's look at the reasons why.
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Applied Digital's performance could sharply exceed expectations
Applied Digital has handsomely crushed Wall Street's earnings expectations in each of the last four quarters, reporting much smaller losses than analysts had been expecting. Its outperformance can be attributed to the remarkable growth in its top line.
For instance, Applied Digital's revenue in the first quarter of fiscal 2026 (which ended on Aug. 31, 2025) increased by 84% from the year-ago quarter to $64 million, well ahead of the $50 million consensus estimate. The company's revenue exceeded expectations thanks to the $26.3 million it recognized from CoreWeave for the fit-out of its data center at the Polaris Forge One complex in North Dakota.
Applied Digital had completed the fit-out of the first 100 megawatts (MW) of HPC hosting capacity for CoreWeave in fiscal Q1. However, the real money for Applied Digital will come from the lucrative lease contracts that it has signed with CoreWeave and others. CoreWeave alone had leased 400 MW of the under-construction data center capacity at Polaris Forge One at the end of the fiscal first quarter. This lease contract will run for 15 years and will contribute $11 billion to Applied Digital's top line through its lifetime.
NASDAQ: APLD
Key Data Points
Given that Applied Digital has already completed the fit-out of 100 MW of capacity for CoreWeave, it expects to start recognizing lease revenue from the end of calendar 2025. What's more, Applied Digital signed a $5 billion, 15-year lease to build a 200 MW AI factory for a hyperscaler in October 2025.
All this suggests that Applied Digital's revenue for the recently concluded fiscal Q2 could easily exceed the 29% year-over-year jump to $82.2 million that analysts are forecasting. So, Applied Digital seems poised to crush Wall Street's expectations once again on Jan. 7, which could spark a rally in its shares.
But what about the valuation?
The massive jump in Applied Digital's stock price in 2025 has made it expensive now, trading at almost 33 times sales. However, the company's ability to deliver better-than-expected growth and a robust revenue pipeline makes it clear that it can indeed justify the valuation. As Applied Digital constructs more data centers and starts recognizing lease revenue, its growth will take off.
This is precisely what analysts are expecting:
APLD Revenue Estimates for Current Fiscal Year data by YCharts
Assuming Applied Digital achieves the $970 million top line that analysts are expecting after a couple of years and trades at a significantly discounted 10 times sales, its market cap could land at $9.7 billion. That would be a 44% increase from its current market cap. However, it's unlikely that Applied Digital will be trading at such a discount, considering the outstanding growth it is likely to deliver.
All this indicates that it would be a good idea to buy this AI stock on the pullback, as it could start soaring once it releases its results in the new year.
