Applied Digital Faces Three Major Risks Amid Data Center Boom
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Feb 06 2026
0mins
Should l Buy APLD?
Source: Fool
- Debt Surge Risk: Applied Digital's debt skyrocketed from $44 million in Q1 FY2024 to $2.6 billion by November 2025, with a debt-to-equity ratio exceeding 125%, significantly increasing execution risks, especially given the company's $125 million loss over the past 12 months.
- Customer Concentration Issue: Applied Digital's HPC Hosting Business relies almost entirely on CoreWeave for all current and future revenue, creating a dangerous dependency that leaves the company with little negotiating power; if CoreWeave opts to build its own capacity or switch partners, Applied Digital faces substantial risks.
- Lease Revenue Uncertainty: The company anticipates generating $16 billion in revenue from leases over 15 years, but CoreWeave can terminate the lease penalty-free if construction is not completed on time, undermining the perceived security of this revenue stream and increasing investor uncertainty.
- Market Opportunity vs. Risks: While there is bullish sentiment around Applied Digital's prospects, the company faces significant challenges in managing debt, maintaining its relationship with CoreWeave, and completing construction on schedule, necessitating careful risk assessment by investors.
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Analyst Views on APLD
Wall Street analysts forecast APLD stock price to rise
11 Analyst Rating
11 Buy
0 Hold
0 Sell
Strong Buy
Current: 36.170
Low
36.00
Averages
49.18
High
99.00
Current: 36.170
Low
36.00
Averages
49.18
High
99.00
About APLD
Applied Digital Corporation is a designer, builder, and operator of sustainably engineered data centers and colocation services for artificial intelligence, cloud, networking, and blockchain workloads. The Company’s segments include data center hosting (Data Center Hosting Business) and high-performance compute hosting (HPC Hosting Business). The Data Center Hosting Business operates data centers to provide energized space to crypto mining customers. Customer-owned hardware is installed in its facilities, and the Company provides operational and maintenance services for a fixed fee. Its facilities include a 106 megawatt (MW) facility in Jamestown and a 180 MW facility in Ellendale, North Dakota. The HPC Hosting Business designs, builds, and operates data centers which are designed to support high-compute applications using advanced technologies and infrastructures to provide services to customers. Its HPC data center is located at its Polaris Forge 1 campus with 100 MW capacity.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Market Valuation: With a price-to-sales ratio of 32, Applied Digital's stock reflects optimistic market expectations for growth; however, the absence of profits and clear projections introduces a degree of uncertainty for investors.
- Industry Outlook: Analysts forecast a 61% revenue growth for Applied Digital in fiscal year 2026 and 55% in fiscal year 2027, indicating robust demand for AI computing power, although the investment carries higher risks, it may outperform the market in the long run.
See More
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- Stock Surge: Applied Digital's stock has surged 50% in 2026 and nearly 400% since early 2025, reflecting strong investor confidence in its future growth despite currently lacking profitability.
- Data Center Expansion: The company is constructing data centers in North and South Dakota, with 700 megawatts already under construction and another 4.3 gigawatts in development, significantly enhancing its market share and revenue potential.
- Energy Advantage: By locating in areas with excess energy capacity, the company not only reduces operational costs but also benefits from the northern climate, which facilitates more efficient cooling of its systems.
- Market Valuation: Despite a high price-to-sales ratio of 32, indicating strong market expectations for future growth, the lack of profitability and clear earnings projections necessitates cautious evaluation of its long-term investment value.
See More
AI Infrastructure Investment Boom: Risks for Applied Digital
- Debt Surge Risk: Applied Digital's debt skyrocketed from $44 million in Q1 2024 to $2.6 billion today, with a debt-to-equity ratio exceeding 125%, indicating that while the company is leveraging debt for growth, it faces significant financial risks, especially as future revenue heavily relies on a single client.
- Customer Concentration Risk: The company is banking on $16 billion in future lease revenue primarily from two companies, with $11 billion from CoreWeave, another high-growth firm taking on substantial debt; if CoreWeave fails to meet its obligations, it could lead to catastrophic consequences for Applied Digital.
- Construction Timeline Pressure: Applied Digital must meet its construction deadlines or risk losing its leases, as CoreWeave can walk away penalty-free if Applied Digital falls behind schedule, adding extra pressure in the complex data center construction process and increasing investment uncertainty.
- Investment Risk Assessment: While there is significant upside potential if everything goes perfectly, the high levels of debt accrued by Applied Digital to compete raise the risk profile for investors, particularly in the current economic climate, leading to a cautious outlook on its future growth.
See More
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- Debt Surge Risk: Applied Digital's debt skyrocketed from $44 million in Q1 2024 to $2.6 billion today, with a debt-to-equity ratio exceeding 125%, indicating significant financial risk as the company pursues growth.
- High Customer Dependency: Of the projected $16 billion in future lease revenue, $11 billion comes from CoreWeave, meaning that any failure by CoreWeave to meet obligations could have catastrophic consequences for Applied Digital, amplifying investment risks.
- Construction Delay Concerns: The company's construction timeline is under pressure, and if it fails to meet deadlines, CoreWeave can walk away from leases penalty-free, creating uncertainty that undermines investor confidence.
- Market Outlook and Risks: While McKinsey forecasts $7 trillion in data center investments by 2030, Applied Digital's high debt levels and reliance on a single customer create significant uncertainties regarding its future in this burgeoning market.
See More
