Applied Digital (NASDAQ: APLD) rallied more than 20% this morning after posting blockbuster financials for its first quarter that came in well above Street estimates.
The artificial intelligence (AI) infrastructure firm posted $64.2 million in revenue, well above $45 million that analysts had forecast, and a narrower-than-expected adjusted loss of only 3 cents for its Q1.
APLD shares also soared because the company signed a 150MW lease agreement with CoreWeave, which fully contracts its Polaris Forge 1 campus.
However, beneath the surface of this seemingly bullish report are three reasons that warrant caution in owning Applied Digital stock at current levels, and beginner investors must pay extra attention before getting swayed by the recent climb.
Widening GAAP net loss could weigh on APLD stock
Applied Digital is seeing its bottom-line deteriorate even though the revenue is actually growing at a fast clip.
The company ended its first quarter with $27.8 million loss, nearly triple the $9.6 million it lost in the same quarter last year, raising questions about the scalability of its hyperscale infrastructure model.
While adjusted EBITDA turned positive ($0.5 million), the GAAP number, nonetheless, reflects mounting operating and financing costs.
Simply put, APLD is growing rather aggressively, but profitability remains elusive.
“We continue to invest heavily in infrastructure to support long-term growth,” Brian Schaeffer, the firm’s CFO, told investors on the earnings call.
But that investment sure is coming at a steep short-term cost for APLD stock.
Dilutive financing could hurt Applied Digital shares
Investors must tread with caution on Applied Digital shares also because the AI company’s capital strategy leans heavily on dilutive financing.
In its fiscal Q1, the Nasdaq-listed firm drew $112.5 million from its $5 billion equity facility and raised an additional $200 million through preferred shares.
While this strengthens liquidity, it dilutes existing shareholders as well and signal that internal cash flows are insufficient to fund expansion.
APLD is building out Polaris Forge 2, a 300 MW campus, and expects full capacity by 2027. But until then, it appears reliant on external capital.
Applied Digital’s chief executive, Wes Cummins, defended the move, saying “this lease validates our platform and execution,” but investors should weigh the cost of that validation.
Applied Digital’s management didn’t update guidance
Applied Digital’s announcement of a 150 MW lease with CoreWeave was a headline-grabber, with the company touting $11 billion in expected lease revenue over 15 years.
Yet, its management didn’t update guidance for FY2026.
That omission leaves investors guessing about how and when this supposedly transformative agreement will impact revenue and margins.
The lease spans more than a decade, and the timing of revenue recognition could be backloaded.
Analysts on the call pressed for clarity, but none was offered. Without updated projections, it’s difficult to assess how the CoreWeave deal will translate into near-term upside for APLD shares.
What’s also worth mentioning is that the consensus “buy” rating on Applied Digital stock comes with a mean target of $27.56, according to The Wall Street Journal.
But the AI stock is already going for north of $29 – indicating much of the good news is already priced in.
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