Applied Digital Reaches $5.2B AI Leasing Agreement with Customers; Company Stock Deemed Undervalued by 11.8%

The stock catalyst for Applied Digital (APLD) is a new 15-year firm lease agreement for its Delta Forge 2 AI campus, with base contract revenue of approximately US$520 million, including renewal options.

Review our latest analysis on Applied Digital.

The new lease agreement and the recent US$350 million credit facility have coincided with significant stock price volatility for Applied Digital, with a 70.91% stock price increase over the past 90 days and total shareholder returns exceeding 300% over one year, reflecting strong momentum related to its AI infrastructure buildout.

If you are interested in this type of AI infrastructure story, it is worth scanning our 49 AI infrastructure stocks to identify other data center and computing-related opportunities.

After experiencing such strong gains, Applied Digital's recent stock price and robust pipeline of signed AI lease revenue raise a critical question for investors: is this stock still undervalued, or has the market already priced in the next stage of growth?

The most closely followed narrative for Applied Digital points to a fair value of $52.80, while the last closing price was $46.59, so the focus is entirely on how long-term AI contracts and power access support this gap.

The company recently signed a long-term (15-year) lease agreement with major AI hyperscaler CoreWeave for its purpose-built AI/HPC data center campus Polaris Forge 1, representing a total of $7 billion in contract revenue and multi-year, recurring, and predictable revenue streams that directly support future revenue growth and cash flow stability.

Want to know what's behind Applied Digital's expected fair value? This narrative relies on rapid revenue growth, sharp profitability transformation, and future earnings multiples that assume investors will pay a premium for these results.

Result: Fair Value $52.80 (Undervalued)

Read the full narrative to understand what's behind the forecast.

However, Applied Digital's story still depends on several pressure points, particularly heavy debt financing and reliance on contracts with a few large hyperscalers that could potentially change.

Understand the key risks of this Applied Digital narrative.

While the most popular narrative for Applied Digital points to an 11.8% fair value gap, the current price-to-sales ratio of 41.7x tells a different story. This is far higher than the US IT industry average of 1.8x, the peer average of 8x, and even higher than the fair ratio of 28.2x. This suggests the market could shift toward lower multiples over time. For investors, the tension lies in whether those AI contracts sufficiently justify the far-above-peer pricing, or whether sentiment has overextended this story.

To stress test whether this higher valuation still aligns with your expectations for Applied Digital, our detailed multiple-based breakdown would be helpful. See what the numbers say about this price—find out in our valuation breakdown.

Given the mixed excitement and concerns surrounding Applied Digital, this is a moment to act quickly, review the fundamentals, and use 1 key positive and 4 important warning signals to decide your position.

If Applied Digital has caught your attention, don't stop there. Use the Simply Wall Street Screener to discover more stocks that fit your approach and time horizon.

This article is written by Simply Wall St and is general in nature. We provide commentary using an unbiased methodology based solely on historical data and analyst forecasts, and our articles are not intended to constitute financial advice. It does not constitute a buy or sell recommendation for any stock, nor does it take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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Design, develop, and operate digital infrastructure solutions for the North American high-performance computing (HPC) and artificial intelligence industries.