Here’s why Applied Digital stock is rising 15%

The AI data center provider has experienced huge growth.

Applied Digital (NASDAQ:APLD), a company that runs high-performance computing data centers, saw its stock price skyrocket some 15% on Monday to make it one of the day’s top gainers.

The catalyst for the data center operator was the announcement that it was building a new AI data center near Harwood, North Dakota, with construction starting in September. As AI grows exponentially, data centers that can handle the massive computing power required by AI grow with it.

Applied Digital is one of the leading providers of data centers that are specifically catered to handle AI computing and workloads.

In the most recent quarter ended May 31, Applied Digital generated $38 million in revenue, up 41% year-over-year. For the current quarter, analysts anticipate revenue of $61 million, which would be a 61% increase. And for the next fiscal year, analysts target roughly $268 million in revenue, on average, which would be 86% higher.

With Monday’s gain, the stock price is up 112% year-to-date to $16 per share and 304% over the past 12 months.

New data center fueled by demand

The new $3 billion data center is called Polaris Forge 2, a 280-megawatt (MW) “AI Factory” on 900 acres that is designed to scale beyond its initial 280MW.

It comes at a time when demand for AI computing is skyrocketing, as more hyperscalers, enterprises, and research organizations seeking scalable, high-performance infrastructure. Polaris Forge 2 is the company’s second facility, following Polaris Forge 1, which is in Ellendale, ND.

“We believe Polaris Forge 2 represents the next stage in Applied Digital’s rapid growth and our position as a leader in delivering high-performance AI infrastructure,” Wes Cummins, CEO of Applied Digital, said. “The demand for AI capacity continues to accelerate, and North Dakota continues to be one of the most strategic locations in the country to meet that need.”

Cummins said the company is in advanced negotiations with a U.S. based hyperscaler for this campus and has “strong interest” from multiple parties. These factors fueled the decision to break ground on the new facility. A hyperscaler is a large company like a Microsoft, Google, Oracle, IBM, or Amazon, to name a few, that need huge amounts of data processed.

“We believe this new campus will strengthen our operations, increase our ability to scale, and create lasting value for both our customers and the communities we serve,” Cummins said.

Analysts rate Applied Digital as a buy

Wall Street analysts rate Applied Digital stock as a strong buy, with a median price target of $18 per share. That would suggest a return of 10% over the next 12 months. But at least one analyst, Craig-Hallum, raised its price target after Monday’s news.

The Wall Street firm bumped its target from $12 per share to $23 per share, which would suggest about 39% upside. I would not be shocked to see more upgrades in the coming days and weeks.

While revenue growth is expected to take off, investors should note that the company is not yet profitable, as it is investing billions in its operations, like this project. That is certainly not unusual for a high-growth company in a high-growth business such as AI data centers.