Shares of Applied Digital Corp (APLD) experienced a significant downturn on Thursday, plummeting 5.12% during intraday trading. This sharp decline comes in the wake of reports indicating a substantial increase in the stock's borrow rate, a key indicator of short-selling activity.

According to data released early Thursday, Applied Digital's indicative borrow rate surged by 1.58 percentage points to reach 9.55%. This marked one of the largest borrow rate increases among liquid option names in the market. The borrow rate, which represents the cost to borrow shares for short selling, often serves as a barometer for bearish sentiment and short-selling demand.

Market analysts suggest that the spike in borrowing costs likely triggered an increase in short-selling activity, putting downward pressure on APLD's stock price. As short sellers borrow shares to sell them with the hope of buying them back at a lower price, the increased activity can lead to a self-fulfilling prophecy of price decline. The timing of the borrow rate announcement before market open, followed by the stock's sharp decline during trading hours, further supports this correlation between the higher borrowing costs and the stock's negative performance.