Artificial intelligence (AI) stocks may have fallen out of favor over the past month for various reasons. However, the financial performance of companies involved in the build-out of AI data center infrastructure makes it increasingly clear that now is the time to capitalize on the pullback in AI stocks.
Goldman Sachs estimates that a whopping $7.6 trillion could be spent on AI data centers, computing hardware, and electricity between 2026 and 2031 in a base-case scenario. This historic infrastructure build-out can be attributed to AI's productivity gains. Anthropic, for instance, notes that using its Claude AI model could reduce the time taken to complete a task by 80%.
The pure-play AI company also points out that AI could increase labor productivity in the U.S. by 1.8% annually over the next decade. That's double the growth rate seen since 2019. These potential productivity gains explain why trillions of dollars will be spent on building AI infrastructure. Applied Digital (APLD -2.07%) is one of the best ways to capitalize on this lucrative market.
Let's look at the reasons why.
Image source: Getty Images.
Applied Digital is a critical cog in the AI infrastructure ecosystem
Applied Digital is a pick-and-shovel AI play. The company designs, builds, and operates dedicated AI data centers for customers such as CoreWeave and hyperscalers. Not surprisingly, the demand for Applied Digital's services is extremely robust, as evidenced by the company's contracts to build and lease out 1.4 gigawatts (GW) of data center capacity.
NASDAQ: APLD
Key Data Points
Applied Digital points out that these contracts represent total contracted lease revenue of $36 billion over the long run. What's more, the potential lease revenue from these contracts balloons to $86 billion if customers decide to exercise renewal options. It is worth noting that Applied Digital generally enters into 15-year take-or-pay lease contracts with customers.
The $36 billion in contracted long-term lease revenue is a massive figure considering that Applied Digital's revenue in the recently concluded fiscal 2026, which ended on May 31, stood at $611 million. The company's top line jumped by an impressive 167% in the latest fiscal year. However, Applied Digital's fiscal Q4 revenue shot up 5x year over year to $259 million, driven by recognition of lease revenue from data center projects it has already completed.
As Applied Digital builds and delivers more data centers to customers, it will be able to convert more of its contractual lease backlog into revenue. Even better, Applied Digital isn't restricting itself to the 1.4 GW of data centers that it is currently constructing. The company is looking to expand capacity at its current campuses and is also marketing an additional 1.7 GW of capacity across multiple states.
Given the strong demand for AI data center infrastructure, it won't be surprising to see Applied Digital finding clients for the additional capacity that it plans to sell in the future. As a result, the company's long-term lease revenue pipeline could get even bigger.
This stock is a multibagger hiding in plain sight
We have already seen that Applied Digital's revenue growth accelerated in the final quarter of fiscal 2026. Analysts, however, are anticipating a slowdown in Applied Digital's top-line growth in fiscal 2027 to just 16%.
Data by YCharts
But as the chart above tells us, Applied Digital's revenue growth will start accelerating from the next fiscal year. However, this AI infrastructure specialist could spring a positive surprise and exceed Wall Street's expectations, given the phenomenal growth it reported last quarter.
Applied Digital claims that the company has built a track record of delivering data center capacity on time and on budget. If the company maintains its discipline, it can indeed grow faster than Wall Street's expectations. However, even if Applied Digital's revenue grows in line with consensus estimates and its revenue increases to $2.7 billion in fiscal 2029 (as per consensus estimates), its market cap could get close to $23.5 billion. That is nearly 3x its current market cap.
I am assuming a price-to-sales ratio of 8.7 to calculate Applied Digital's market cap after three years, which is in line with the U.S. tech sector's average sales multiple. However, it has the potential to deliver bigger gains due to its solid lease revenue pipeline, which should result in a stronger-than-expected top-line jump. Also, the market could reward this AI stock with a richer valuation due to its terrific growth.
All this makes Applied Digital an ideal stock to buy and hold for the long run to capitalize on the AI infrastructure build-out.
