Shares of Applied Digital Corporation experienced a notable uptick of 7.9%, closing at $39.52 on May 20, amid a broader rally within the semiconductor sector. This surge was mirrored by industry leaders, with ARM Technologies soaring 15% and AMD gaining over 8%, positively impacting the entire AI data center supply chain.
Approximately 25.7 million shares changed hands during the trading session, aligning closely with the stock's recent average daily volume of 26.2 million. This suggests that the movement was driven by genuine investor interest rather than a fleeting short squeeze, indicating a solid foundation for the stock's rise.
Previously, Applied Digital's stock closed at $36.62, and during Wednesday's trading, it reached a peak of $39.59 before settling just shy of this high. The sustained momentum throughout the day highlights investor confidence, as the stock did not experience a significant late-session decline.
The recent quarterly earnings report, disclosed on April 8, showcased stable revenue growth of $108.55 million, marking a 139.3% increase year-on-year and exceeding analyst expectations of $78.47 million. This revenue surge underscores that Applied Digital's $7.5 billion hyperscaler lease and the associated pipeline are translating into tangible commercial success.
However, the company's earnings per share (EPS) failed to meet forecasts, reporting a loss of $0.36 per share against a consensus estimate of a $0.13 loss. This discrepancy reflects the heavy capital expenditures and scaling costs tied to its rapid infrastructure expansion. Despite this EPS miss, analyst sentiment remains largely positive, with a consensus rating of Moderate Buy based on two Strong Buy, eleven Buy, one Hold, and one Sell rating. The average price target stands at $44.67, suggesting an additional upside of approximately 13% from the recent closing price.
Investment firms are optimistic about Applied Digital's future. Needham & Company recently raised its price target to $51, maintaining a Buy rating. Citigroup has designated the stock as Outperform, while Texas Capital upgraded its rating to Strong Buy earlier this year, and Northland Securities has set a target of $56.
Institutional ownership plays a significant role in Applied Digital's stock dynamics, with notable increases from major investors. Vanguard Group increased its stake by 36.4% in the fourth quarter, now holding 24.2 million shares valued at $592.6 million. Situational Awareness LP and Geode Capital Management also boosted their positions, contributing to a total institutional ownership of 65.67% of the company’s outstanding stock.
Conversely, insider selling activity has been apparent, with director Douglas Miller selling 10,000 shares at $34.98 on April 27 and director Richard Nottenburg offloading 12,500 shares at $34.59 on April 30, reducing their respective holdings by approximately 5%. This selling trend, while not uncommon among insiders, could raise questions about the timing of their sales relative to the company’s upward momentum.
As the semiconductor market continues to expand, Applied Digital's position within the AI infrastructure space appears increasingly favorable. With strong backing from institutional investors and a solid revenue trajectory, the company could be well-positioned for further growth, despite the challenges evident in its EPS performance. Investors will be closely watching for upcoming announcements and market developments that could influence this promising trajectory.
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