Applied Digital Corporation APLD is set to report its third-quarter fiscal 2025 results on April 14.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The Zacks Consensus Estimate for third-quarter fiscal 2025 revenues is pegged at $63.57 million, indicating year-over-year growth of 46.63%.

The consensus mark for loss is pegged at 11 cents per share, unchanged over the past 30 days. APLD reported a loss of 52 cents per share in the year-ago quarter.

APLD earnings missed the Zacks Consensus Estimate in each of the trailing three quarters while beating the same once, with a negative average surprise of 185.39%.

Let’s see how things have shaped up prior to this announcement.

Factors to Note for APLD Q3 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 is seeing strong demand in its Cloud Services business, driven by the deployment of additional GPU clusters. As more clusters go online and AI applications continue to expand, this segment is expected to have contributed significantly to APLD’s revenue growth in the to-be-reported quarter. Cloud Services business revenues jumped 523% year over year to $27.7 million in the second quarter of fiscal 2025.

APLD’s data center hosting segment for cryptocurrency clients remains strong, especially with Bitcoin recently hitting $100,000. The demand for hosting services, particularly in North Dakota, is likely to stay robust, providing a solid revenue stream in the fiscal third quarter of 2025. The Data Center Hosting business segment generated $36.2 million in revenues in the second quarter of fiscal 2025.

APLD’s newly announced partnership with Macquarie Asset Management is expected to have been a tailwind in the to-be-reported quarter. The $5 billion perpetual preferred equity financing facility, including the $900 million allocated for the Ellendale HPC campus, will provide financial support for future expansion, enabling further development of data center infrastructure.

Investments from CIM Group, NVIDIA NVDA, and now Macquarie are helping to lower the cost of capital, which will aid in financing APLD’s ongoing and future projects. This support from prominent investors is likely to have improved the company’s financial flexibility and accelerated growth in the to-be-reported quarter.

APLD Shares Underperform Sector, Industry

APLD shares have plunged 33.1% in the year-to-date period, underperforming the broader Zacks Finance sector’s decline of 16.3% and the Zacks Financial - Miscellaneous Services industry’s decrease of 19.4%.

YTD APLD Stock Performance

Image Source: Zacks Investment Research

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

In terms of the forward 12-month Price/Sales (P/S) ratio, APLD is trading at 3.29, higher than its industry’s 2.93.

Price/Sales Ratio (Forward 12 Months)

Image Source: Zacks Investment Research

APLD Gains From Rich Partner Base

Applied Digital has a rich partner base, which includes Super Micro Computer SMCI, Hewlett Packard Enterprise HPE, Dell Technologies and NVIDIA.

APLD collaborated with Super Micro Computer for its high-performance server and storage solutions that support computationally intensive workloads. Super Micro Computer’s next-generation GPU servers are highly power-efficient, addressing the growing energy demands of large-scale AI models. These servers help Applied Digital optimize its total cost of ownership for sustainable operations.

APLD partnered with Hewlett Packard Enterprise to leverage HPE Cray XD supercomputers featuring NVIDIA H100 GPUs to operate its large-scale AI services. Hewlett Packard Enterprise also enabled APLD to design and engineer its cloud infrastructure facilities.

What Should Investors Do With APLD Shares?

Applied Digital’s expanding data center capacity bodes well for its prospects. Hence, investors who already own the stock may expect the company’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 APLD’s cloud business, which has yet to deploy GPU clusters and generate revenue, are a headwind. The company is also facing stiff competition from several prominent data center providers like Equinix.  

Applied Digital currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a better entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Super Micro Computer, Inc. (SMCI) : Free Stock Analysis Report

Hewlett Packard Enterprise Company (HPE) : Free Stock Analysis Report

Applied Digital Corporation (APLD) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research