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Summary:

Applied Digital is aggressively expanding its AI and HPC data center infrastructure, primarily through a $2.35 billion debt offering and a $787.5 million equity facility. This expansion, centered around the Polaris Forge campus, aims to capitalize on growing demand from hyperscalers, including a significant $5 billion, 15-year lease. The company projects substantial revenue and earnings growth by 2028 but faces risks related to execution, financial leverage, and customer concentration. Investor opinions on the company’s fair value vary widely, highlighting the uncertainty surrounding its future performance. The article cautions investors to consider the company’s financial health and risks before investing.

News Article:

Applied Digital Bets Big on AI with Massive Financing for Data Center Expansion

Ellendale, ND – Applied Digital (APLD) is making a bold move into the artificial intelligence and high-performance computing (HPC) data center market, securing a substantial $2.35 billion in debt and $787.5 million in equity financing to fund the construction and expansion of its Polaris Forge campus in Ellendale, North Dakota.

The company announced earlier this month it priced a private offering of 9.250% senior secured notes due 2030 to fund construction and expansion of two major data centers. In addition to the debt, Applied Digital will draw US$787.5 million from a perpetual preferred equity facility with Macquarie Asset Management. The infusion of capital will support Applied Digital’s expansion into AI and HPC infrastructure.

This aggressive expansion is fueled in part by a recently finalized 15-year, $5 billion lease agreement with a leading U.S. hyperscaler. The long-term agreement highlights the demand for Applied Digital’s services. However, the substantial debt and equity financing introduce significant financial leverage and potential share dilution, raising concerns among some investors.

Analysts project a bright future for Applied Digital, with revenue expected to reach $755.7 million and earnings hitting $102.2 million by 2028. To meet these goals, Applied Digital will need to achieve 73.7% yearly revenue growth and a $263.2 million increase in earnings, while overcoming a current $161 million deficit.

“Successful execution and timely delivery of capacity under existing hyperscaler contracts remain the most important near-term catalyst for the company,” notes Simply Wall St, in a recent analysis. The company also warned that the biggest risk remains execution under increasing financial leverage and customer concentration exposure.

Investor opinions on Applied Digital’s valuation vary widely, with fair value estimates ranging from $2.89 to $43.70. This highlights the uncertainty and risks associated with the stock.

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