Applied Digital APLD faces growing profitability pressure as its AI data center expansion drives debt and interest costs sharply higher. As of Aug. 31, 2026, the company carried approximately $6.4 billion of debt. First-quarter fiscal 2027 interest expense surged 866% year over year to $77.4 million, compared with $8 million a year earlier. Interest income also rose to $35.8 million from $0.9 million, partly offsetting the financing burden.
The financing burden reflects substantial infrastructure investments. Purchases of property, equipment and other assets reached $2.07 billion during the quarter, dwarfing the $63.9 million in operating cash flow. APLD issued $1.59 billion in 7% senior secured notes to fund the third building at Polaris Forge 1 and repay a bridge loan. The company still needs financing for Polaris Forge 3 and Delta Forge 1 and 2.
These expenses are diluting the benefits of strong demand. Despite a 322% jump in revenues to $341.9 million, APLD reported an operating loss of $62.4 million and a $221 million net loss attributable to common shareholders from continuing operations. The company estimates $2.16 billion in future interest payments on existing debt obligations, adding pressure as construction continues.
Still, management has some protection. More than 80% of debt principal matures in fiscal 2031 or later, the latest note coupon improved from 9.25% on earlier issuance and approximately $36 billion of long-term contracted revenues support future rental growth. Even so, AI-driven revenues have not yet overcome the debt burden. Reducing financing costs and converting contracted campuses into cash-generating assets will be crucial to restoring profitability.
How Are AI Infrastructure Peers Managing Profitability Pressures?
CoreWeave CRWV, which leases capacity at APLD's Polaris Forge 1 campus, faces similar profitability challenges from rising financing expenses. In its second-quarter 2026 results, CoreWeave reported $2.58 billion in revenues, up 112% year over year, and approximately $104 billion in revenue backlog. However, net interest expense surged to $640 million from $267 million a year earlier, while net loss widened to $626 million from $290 million. CoreWeave’s adjusted operating income also declined to $128 million from $200 million, highlighting the challenges of translating robust AI demand into sustainable profitability.
Core Scientific CORZ is advancing its AI infrastructure strategy by converting Bitcoin-mining facilities into high-density colocation data centers. In the second quarter of 2026, Core Scientific reported $136.7 million in colocation revenues, while its billable capacity reached 437 megawatts by mid-July. However, capital expenditures totaled $797.5 million during the quarter, while net interest expense reached $23.8 million. Its AMD-linked infrastructure partnership covering approximately 530 megawatts adds growth opportunities but also significant funding requirements. Like APLD, Core Scientific must balance aggressive infrastructure investments with financing costs to achieve sustainable profitability.
APLD’s Share Price Performance, Valuation & Estimates
APLD's shares have lost 36% over the past month, compared to the broader Zacks Finance sector’s down 2.7%.
APLD’s 1-M Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, APLD trades at a trailing 12-month price/sales (P/S) ratio of 6.03, higher than the Finance – Miscellaneous Services industry’s 2.39. The company carries a Value Score of F.
APLD’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Applied Digital’s fiscal 2027 bottom line is currently pegged at a loss of $2.06, trending downward over the past 30- and 60-day periods. The projected loss is wider than the 91-cent loss recorded a year ago.
Image Source: Zacks Investment Research
APLD stock currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This innovative software-as-a-service firm upped its user base +22% year over year. That rate is increasing and margins are expanding as AI efficiencies take effect. Of course, all our elite picks aren't winners, but this one could far surpass earlier Zacks' Stocks Set to Double like D-Wave Quantum, which shot up +680.1%.
Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Applied Digital Corporation (APLD): Free Stock Analysis Report
Core Scientific, Inc. (CORZ): Free Stock Analysis Report
CoreWeave Inc. (CRWV): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).