Investment prospects for Applied Digital APLD appear concerning, with shares having declined 35.6% over the past three months, significantly underperforming the broader Zacks Finance sector and the Financial - Miscellaneous Services industry, which have gained 8% and 5.6%, respectively, over the same period.
APLD stock has also underperformed several major AI data-center infrastructure peers, including IREN Limited IREN, Marathon Digital MARA and Riot Platforms RIOT. Over the past three months, IREN Limited, Marathon Digital and Riot Platforms shares have declined 24.5%, 17.9% and 15.2%, respectively, representing comparatively smaller losses than APLD.
APLD’s 3-Month Price Performance
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The decline in share price is driven by heavy capital requirements, rising leverage and the risk of further shareholder dilution. The long gap between investment and revenue realization, coupled with high customer concentration, heightens investor concerns.
Now the question arises: Should investors continue to hold the stock, or exit before losses deepen? Let’s assess the situation more thoroughly.
APLD’s Capital Intensity and Leverage Create Pressure
Applied Digital’s aggressive AI data-center expansion is creating a significant near-term capital burden. The company spent approximately $2.87 billion on property, equipment and other assets in fiscal 2026 compared with $681.6 million a year earlier, as it accelerated development of its HPC infrastructure. At the same time, APLD has relied heavily on external financing to fund this expansion, including a $2.15 billion 6.75% senior secured notes offering completed in March 2026. The company’s financing needs highlight the capital-intensive nature of its expansion, as substantial spending is required before its newer campuses begin generating recurring rental revenue.
The rising financing burden adds another layer of pressure. APLD reported $5.31 billion of scheduled debt obligations as of May 31, 2026, along with approximately $1.78 billion of estimated interest payments over the life of those obligations. Management also highlighted that the company has multiple debt maturities extending through 2031 and beyond, increasing the importance of maintaining sufficient liquidity and generating stronger operating cash flow as its data-center portfolio scales.
While the debt is being used to finance assets supported by long-term customer contracts, investors may remain cautious until those assets become operational and generate enough recurring cash flow to support the associated financing costs. This makes APLD’s ability to convert its large contracted backlog into operating assets and cash flow a critical factor for the stock.
Further shareholder dilution remains an important concern as APLD has relied on equity financing, alongside substantial debt, to fund its expansion. The company sold approximately 15.3 million common shares for $196.4 million under its June 2025 ATM agreement and has simultaneously initiated additional equity-linked instrument and preferred-stock financing, underscoring that shareholders could face further dilution as the company continues funding its growth.
APLD’s Delayed Revenue Realization Clouds the Outlook
Applied Digital’s substantial investment in AI infrastructure is occurring well ahead of the full realization of its contracted revenue opportunity. As of May 31, 2026, APLD had secured approximately 1.41 GW of contracted critical IT load across five campuses, representing roughly $36 billion of contracted revenue over the initial 15-year lease terms. However, only the first 100 MW at Polaris Forge 1 had become operational by the fiscal year-end, with Phase 1 of Building 2’s additional 75 MW reaching Ready for Service on June 30, 2026. The remaining projects are still in various stages of construction. This creates a meaningful lag between capital deployment and recurring revenue generation, leaving investors to absorb construction and financing costs before the corresponding revenue streams fully ramp.
The timing of APLD’s new leases further highlights this gap. Delta Forge 1’s 300 MW and Polaris Forge 3’s 300 MW facilities are expected to begin operations during 2027, while the 210 MW Delta Forge 2 project is expected to commence operations in the first half of 2028. The company’s minimum contracted lease payments also show only $451.1 million expected in fiscal 2027, compared with $1.45 billion in fiscal 2028 and more than $2.25 billion in fiscal 2029. From an investor’s perspective, this extended ramp period clouds near-term visibility because APLD must continue funding construction and carrying associated costs while much of its contracted revenue remains several years away.
Applied Digital’s Earnings Estimates Trend Down
The Zacks Consensus Estimate for APLD’s first-quarter fiscal 2027 loss is currently pegged at 26 cents per share, down by 53% cents over the past 30 days. The company reported a loss of 11 cents in the year-ago quarter.
Likewise, the consensus mark for fiscal 2027 earnings has been revised down to $1.09 per share, indicating a 11.2% decline over the past 30 days.
APLD has struggled to deliver consistently strong quarterly performance. Its bottom line missed the Zacks Consensus Estimate in three of the trailing four quarters and met once, resulting in an average negative surprise of 99.72%.
Image Source: Zacks Investment Research
Rich Valuation Limits Upside Potential
APLD shares are overvalued, as suggested by a Zacks Value Score of F. Its trailing 12-month price-to-book (P/B) ratio of 4.46X stands above the industry average of 3.06X. This premium suggests investors are assigning considerable value to APLD’s long-term growth prospects and contracted AI infrastructure pipeline rather than its current book value.
The valuation concern becomes more apparent when APLD is compared with its peers. Companies such as IREN Limited, Marathon Digital and Riot Platforms trade at significantly lower forward sales multiples of 4.06X, 2.61X and 3.76X, respectively.
APLD’s Price/Book Ratio (TTM)
Image Source: Zacks Investment Research
Here’s Why You Should Sell APLD Stock Now
APLD’s heavy capital requirements, rising leverage, delayed revenue realization, earnings estimate cuts and premium valuation create an unfavorable risk-reward profile. While its contracted AI infrastructure pipeline offers long-term potential, near-term financial pressures and dilution risks make APLD less attractive. Therefore, investors may consider selling the stock rather than holding it now.
APLD currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Applied Digital Corporation (APLD): Free Stock Analysis Report
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Riot Platforms, Inc. (RIOT): Free Stock Analysis Report
IREN Limited (IREN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).