Applied Digital (APLD +2.70%) is expected to report fiscal third-quarter earnings on Wednesday, April 8, and Wall Street is optimistic. The artificial intelligence (AI) data center developer isn't widely covered, but the analysts who do cover the stock see a whole lot of upside from where it trades today at around $25 a share.
Here's a snapshot of Wall Street's targets for Applied Digital stock:
| Analyst Firm | Rating | Share Price Target | Upside |
|---|---|---|---|
| Roth Capital | Buy | $58 | 132% |
| B. Riley Securities | Buy | $53 | 112% |
| Lake Street | Buy | $45 | 80% |
| Needham | Buy | $41 | 64% |
| Northland Capital Markets | Outperform | $40 | 60% |
Source: Benzinga.
Even the most conservative target on that list implies an incredible return over the next 12-18 months. Clearly, analysts are confident in Applied Digital's future thanks to its $16 billion in contracted lease revenue and its success -- so far -- in hitting its construction targets.
But I've written about why I think the risks here are underappreciated, and this quarter's earnings could make some of these more visible. Here are the three things I'll be watching most closely when Applied Digital reports earnings on Wednesday.
Image source: Getty Images.
1. What will revenue look like now that 100MW is ready for service?
Last quarter's $126.6 million headline revenue was impressive, but a bit misleading. It included a one-time, $73 million "fit-out" payment from CoreWeave. Strip it out and the actual recurring revenue was closer to $54 million, most of which is still coming from its Bitcoin mining tenants.
This is the quarter, however, where we will start to see how much revenue the company is recognizing from its long-term leases, after it successfully delivered 100 megawatts of capacity -- enough to power roughly 50,000 American homes -- at its Polaris Forge 1 site.
2. How will the Iran War impact Applied Digital's supply chain?
Half of the data center builds planned for the U.S. in 2026 have already been delayed or canceled, according to analysts at Sightline Climate. Supply chains for AI data centers were already strained, and the war in Iran has made things significantly worse.
Energy costs are rising as major sources of crude oil and liquified natural gas (LNG) are choked off from global markets. So is helium, a critical component in semiconductor fabrication.
Transformers and other power infrastructure equipment, already in short supply, are getting harder to source. I want to hear what management says about whether any of this is affecting the company's ability to get its hands on the materials and equipment it needs to complete the next phases of Polaris Forge 1 and 2.
3. Can Applied Digital deliver 500 megawatts on time?
As already noted, Applied Digital delivered 100 megawatts on schedule, and that is genuinely encouraging. But there are still roughly 500 MW left to build, and the lease agreements allow tenants to walk away if Applied falls behind on delivery targets. Given the stressed supply chains, I want to know if management alters its expectations on construction timelines. Even vague hedging on the earnings call should be taken seriously.
NASDAQ: APLD
Key Data Points
The bottom line
Wall Street is forecasting that the stock could double in value, but I'm not so sure.
While that's certainly possible in the near term -- data center stocks can be volatile -- over the long run, I think the company's financial balancing act will prove too difficult to maintain.
And I think the cracks -- however small -- will begin to show on April 8. Be cautious with this stock as you research it further or consider purchasing.
