Applied Digital (APLD.US), a data center operator, reported quarterly results that surpassed market expectations, yet the news failed to noticeably lift investor confidence, with the stock falling more than 1.8% on Thursday.
Despite the muted share price reaction, Wall Street analysts remain broadly optimistic about the company's long-term growth prospects, believing that as demand for artificial intelligence (AI) and high-performance computing (HPC) continues to rise, Applied Digital is positioned to expand further by scaling up its data center capacity.
According to the earnings report, Applied Digital's fiscal first-quarter revenue reached $341.9 million, representing a year-over-year increase of 322.5%; adjusted loss per share came in at $0.01, beating market expectations by $0.29, with both revenue and profitability surpassing analyst forecasts.
Wells Fargo stated that Applied Digital's development and commercialization progress on its remaining 1.4 gigawatts of data center capacity remains in line with expectations, and consequently raised its price target on the stock from $50 to $55.
The bank expects Applied Digital to sign approximately 250 megawatts of additional data center lease agreements before the end of the year, with pricing on these new contracts anticipated to be roughly 15% higher than the company's initial lease agreements.
This means that as AI computing demand grows, the company could not only expand its leased scale but also command higher rental income.
However, U.S. investment bank Needham believes the magnitude of Applied Digital's earnings beat was relatively limited.
The firm noted that the company is currently marketing approximately 1.3 gigawatts of data center capacity to potential clients, most of which is not expected to become operational until 2028.
Needham also pointed out that the revenue beat this quarter was largely driven by one-time data center fit-out construction service revenue rather than being entirely propelled by recurring rental income growth.
That said, the company's base rental income from high-performance computing data centers also came in better than expected, indicating that its core leasing business continues to maintain growth momentum.
In contrast, securities research firm Craig-Hallum holds a more optimistic view on Applied Digital's long-term prospects.
The firm maintained its "Buy" rating on the stock with a price target of $79, believing the company is steadily building a large-scale data center operating enterprise.
Craig-Hallum commented: "We continue to firmly believe that Applied Digital is building a massive company, and its approach to expansion is predictable and replicable."
The firm noted that Applied Digital continues to lead the industry in data center site selection, customer contract signing, facility design, and infrastructure construction, while also improving project construction and expansion efficiency through a more standardized development model.
As the company's pipeline of data center projects continues to grow, Craig-Hallum believes this standardized, replicable development approach will help Applied Digital continue to scale its business in the coming years and capture opportunities from rising demand for AI computing infrastructure.
Nevertheless, Applied Digital's growth prospects still depend on whether new data centers can be completed on schedule and whether subsequent lease agreements can be signed smoothly.
Although the stock failed to rally on the earnings beat in the short term, institutions including Wells Fargo and Craig-Hallum still believe that the company's expanding pipeline of data center projects will provide support for future revenue growth.