Applied Digital (Nasdaq: APLD) is riding high on artificial intelligence mania.
The company, which builds and operates data centers for AI computing and cryptocurrency mining, has seen its stock surge from below $3 to over $10 in just the past few months as investors have bet big on its AI ambitions.
That’s a stunning 356% gain since April, which has come amid growing excitement around data center demand for AI applications.
But has this enthusiasm pushed the stock’s valuation into dangerously overheated territory?
Let’s run the stock through The Value Meter to find out.
Applied Digital’s enterprise value relative to its net assets, or EV/NAV, sits at 9.74. That makes the stock a jaw-dropping 57% more expensive than average. In simpler terms, you’re paying $1.57 on the dollar for Applied Digital’s assets.
This kind of premium valuation is often reserved for companies with proven track records and strong profitability – and Applied Digital has neither.
Expensive assets could be justified if the company is generating strong cash flows… but in this case, that’s where things get even more concerning.
Over the past four quarters, Applied Digital’s free cash flow averaged -45.08% of its net assets, meaning it’s burning through nearly half the value of its asset base every quarter.
That’s significantly worse than the industry average cash burn of -18.06%. In other words, the company is spending money at more than twice the rate of its peers.
Applied Digital’s latest results highlight these challenges.
While quarterly revenue grew 67% year over year to $60.7 million in the most recent quarter, the company’s adjusted net loss widened to $21.6 million.
Management points to promising developments like its new 100-megawatt data center in North Dakota and strategic investments from Nvidia, but the company continues to spend heavily on expansion while facing substantial operating losses.
There’s also the recently announced $450 million convertible note offering, which will provide growth capital but also adds significant debt to the balance sheet.
Looking at the stock’s wild price swings over the past year – with multiple rallies and sell-offs of 50% or more – it’s clear that the price action is being driven by sentiment rather than fundamentals.
While Applied Digital’s bet on AI infrastructure could pay off if computing demand continues to surge, today’s valuation is pricing in near-perfect execution. The company still needs to prove it can profitably operate and scale its data centers in an increasingly competitive market.
Until then, The Value Meter rates Applied Digital as “Extremely Overvalued.”
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