Applied Digital (APLD) Stock: What's Driving Its Price and the Underlying Data

Applied Digital ($APLD) stock is up 2% today, with around $15 million in trading volume. That's a blip. What's more interesting is the narrative being spun around their contracted revenue, particularly the claim of ~$16 billion across their Polaris Forge campuses. Let's dig into the numbers and see if this figure holds water, or if it's just clever marketing.

The Allure of "Contracted Revenue"

The press releases are glowing. Applied Digital trumpets the completion of Phase II at their Polaris Forge 1 campus, bringing the first 100 MW building to full capacity. Good news, sure. But the real headline grabber is the "$16 billion" in contracted revenue. It's plastered all over the news, driving headlines. The implication is clear: APLD is sitting on a goldmine of future earnings. But what does "contracted revenue" actually mean in this context?

It means Applied Digital has signed leases with companies like CoreWeave and a "U.S. based Investment Grade Hyperscaler" (which remains unnamed). These leases commit those companies to paying APLD over a certain period. The $16 billion is the total value of those leases if everything goes according to plan. That's a big "if."

Now, consider insider trading activity. Over the past six months, insiders have sold shares 18 times and purchased shares zero times. WES CUMMINS (CEO; Chairman) alone sold 400,000 shares for an estimated $6.1 million. Mohammad Saidal Lavanway Mohmand (Chief Financial Officer) sold 212,503 shares for an estimated $5.9 million. I've looked at hundreds of these filings, and while insider selling isn't automatically a red flag, the unanimity of the selling here is noteworthy.

The Discounted Value of Future Promises

Here's the problem with projecting revenue so far into the future: the time value of money. $16 billion spread over, say, ten years is not the same as having $16 billion in the bank today. You need to discount that future revenue stream to its present value. And the discount rate you use depends on the risk involved. What are the risks here?

The biggest risk is that those leases don't pan out. Maybe CoreWeave goes belly up. Maybe the "U.S. based Investment Grade Hyperscaler" decides it doesn't need all that capacity. Maybe APLD can't deliver the infrastructure on time or on budget. Any of these scenarios would significantly reduce the actual revenue APLD collects.

We've seen 243 institutional investors add shares, and 155 decrease their positions. This is a net positive, but not overwhelmingly so. What would be more insightful is the size of these moves. Are we seeing small additions and large decreases, or vice versa? The data doesn't say.

Wall Street analysts are overwhelmingly bullish, with nine "buy" ratings and zero "sell" ratings. The median price target is $37.0. But analyst ratings are, let's be honest, often more about maintaining relationships with companies than providing truly independent analysis. I'm not saying they're wrong, but I take them with a grain of salt.

The company's language is also telling. Todd Gale, chief development officer of Applied Digital, said that bringing the first 100 MW building to full critical load on schedule reflects the engineering discipline and execution reliability their customers expect. This sounds like a company trying very hard to project stability and competence.

And this is the part of the report that I find genuinely puzzling: Applied Digital needs to project stability, as they are competing in a space where NVDA, AMZN, MSFT, and GOOGL all have a foothold.

$16 Billion? More Like $8 Billion (Maybe Less)

So, what's the real value of that $16 billion in contracted revenue? It's impossible to say for sure without knowing the exact terms of the leases (duration, payment schedule, cancellation clauses, etc.). But let's make some educated guesses.

If we assume the revenue is spread evenly over ten years, and we use a discount rate of, say, 10% (reflecting the inherent risks in this business), the present value of that $16 billion drops to around $9.8 billion. And that's a best-case scenario. If we factor in a higher discount rate (say, 15% or 20%) to account for the significant execution risks, the present value could be as low as $6 billion or $7 billion.

In other words, the $16 billion figure is a grossly inflated representation of the company's actual future prospects. It's a marketing number, not a financial reality.

Hype Over Substance