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Applied Digital Corporation (APLD - Free Report) is set to report its second-quarter fiscal 2025 results on Jan. 14. The Zacks Consensus Estimate for second-quarter fiscal 2025 revenues is pegged at $63.65 million, indicating year-over-year growth of 50.83%. 

The consensus mark for loss is pegged at 14 cents per share, unchanged over the past 30 days. The company reported a loss of 10 cents per share in the year-ago quarter.

Let’s see how things are shaping up prior to the announcement.

Applied Digital Corporation Price and EPS Surprise

Image Source: Zacks Investment Research | Applied Digital Corporation Quote

Factors to Consider for Applied Digital Corporation's Q2 Earnings

Applied Digital, builder and operator of next-generation digital infrastructure designed for High-Performance Computing (HPC) applications, cloud services, and data center hosting, has been benefiting from strong top-line growth. The trend is expected to have continued in the to-be-reported quarter.

The company's access to 100s of MWs of affordable energy and its ability to construct quality AI data centers are driving prospects.

Applied Digital Corporation's Shares Underperform Sector, Industry

Applied Digital's shares have appreciated 11% in the trailing 12 months, underperforming the broader Finance sector’s return of 22% and the Zacks Financial Miscellaneous Services industry’s appreciation of 19.1%.

One-Year Performance Chart

Image Source: Zacks Investment Research 

Applied Digital's stock is not cheap, as the Value Score of F suggests a stretched valuation at the moment.

In terms of the forward 12-month Price/Sales (P/S) ratio, the stock has been trading at around 5.4X, which higher than its median of 2.55X and the industry’s 2.62X.

Price/Sales Ratio (Forward 12-Month)

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Expanding Data Center Capacity to Aid Applied Digital Corporation's Growth

Applied Digital is on track to finalize the lease agreement with a U.S.-based hyperscaler for its 100 MW facility at the Ellendale HPC campus, which is currently under construction. This state-of-the-art, more than 369,000-square-foot facility is specifically designed for HPC applications, including AI. 

The company is in the design phase for two additional buildings at this location, increasing the total capacity to 400 MW. Applied Digital also recently announced the successful energization of its on-site main substation transformer in Ellendale, HPC center.

Its Data Center Hosting Business operates data centers to provide energized space to crypto mining customers. As of Aug. 31, 2024, Applied Digital’s 106 MW facility in Jamestown, ND and 180 MW facility in Ellendale, ND, were operating at full capacity.

Applied Digital is planning to accelerate the monetization of its more than 1.4 gigawatt pipeline. It expects to deploy additional clusters in the second half of fiscal 2025, which begins Dec. 1.

The company has a rich partner base that includes NVIDIA (NVDA - Free Report), Super Micro Computer, Hewlett Packard (HPE - Free Report), and Dell Technologies (DELL - Free Report).

As part of Applied Digital’s partnership with Hewlett Packard, the latter provides powerful and energy-efficient supercomputers to support large-scale AI through Applied Digital's cloud service. It also has supply agreements with Dell for the delivery of AI and GPU servers.

Applied Digital Corporation Shares - Buy, Sell or Hold?

Applied Digital’s expanding data center capacity bodes well for its prospects. Its prospects benefit from an improving liquidity position. On Sept. 5, 2024, the company entered into definitive agreements for a $160 million private placement with a group of institutional and accredited investors, including NVIDIA.

Applied Digital recently refinanced a senior secured credit facility with a former senior lender that lowers the overall cost of capital for its Ellendale HPC data center campus. It secured a $150 million debt financing with Macquarie Equipment Capital, a division of Macquarie Group’s Commodities and Global Markets business.

Hence, investors who already own the stock may expect Applied Digital's growth prospects to be rewarding over the long-term. However, the company’s stretched valuation is a concern for investors. Higher expenses related to data center leases for Applied Digital's cloud business that are yet to GPU clusters and generate any revenue is a headwind.

Currently, Applied Digital carries a Zacks Rank #3 (Hold) rating, which implies that investors should wait for a better entry point to accumulate the stock.

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