• Applied Digital surged after CoreWeave expanded its AI computing lease, pushing the total contract value to $11 billion.

• The lease announcement prompted analysts at Citizens to raise APLD's price target, reflecting bullish near-term sentiment amid rising AI infrastructure demand.

Applied Digital stock skyrocketed 31% on Thursday to close at $13.14, making it one of the day's top-performing small-cap tech stocks. The rally was likely related to the company's stronger-than-expected fiscal Q4 earnings report (released Wednesday after market close) and a major expansion of its long-term lease agreement with AI hyperscaler CoreWeave.

The company saw trading volume more than 2.5 times its recent average, indicating heavy institutional interest. While Applied Digital remains about 17% below its 52-week high of $15.42, the stock decisively broke above recent resistance levels and is now up sharply year-to-date.

In fiscal Q4, Applied reported $38 million in revenue, up 41% year over year, and an adjusted EPS loss of $0.03, easily beating analyst expectations.

Most notably, the company announced that CoreWeave exercised a 150-megawatt (MW) lease option, boosting total contracted capacity to 400 MW and unlocking up to $11 billion in potential revenue over the next 15 years.

Applied Digital gets a big win

Applied Digital announced that its partner CoreWeave exercised a lease option for an additional 150 MW of computing power, bringing the total contract value to $11 billion. This is the maximum the company can provide from its Ellendale, North Dakota, location.

The analyst Greg Miller of Citizens maintained his buy rating on the stock after the news and raised his price target to $16.

Big tech continues its AI spend

The news comes as major AI players in big tech like Meta Platforms and Microsoft release their earnings results, showing no signs of reining in their AI capital expenditures (capex). Quite the opposite.

Image source: Getty Images.

Meta nearly doubled its capex year over year while Microsoft grew its capex by 22% to $17.1 billion and plans to increase that to $30 billion this quarter. That figure was 60% more than analysts expected.

Applied is growing fast, but the future is uncertain

While I think the company will continue to perform well in the near term, I have significant concerns about the business model long-term. The Metas and Microsofts of the world may be leaning on specialty cloud providers at the moment to keep up with the rapid growth of AI demand, but they are also heavily investing in building their own facilities. I don't see a strong moat for Applied Digital that makes me think this is a long-term hold.