A striking financing burden sits at the heart of Applied Digital’s (NASDAQ: APLD) investment case, one that even a massive lease backlog has so far failed to overcome.
In the August quarter, interest expense and preferred dividends combined reached 2.6 times the company’s base rent, a structural imbalance that overshadows an otherwise impressive revenue growth story.
Interest expense alone surged to $77.4 million from just $8.0 million a year earlier, actually exceeding the $65.8 million of base rent the company collected during the same period.
Macquarie’s preferred equity, carrying a 12.75% coupon and paying $60.1 million in dividends in kind during the quarter, adds further pressure ahead of common shareholders in the capital structure.
On top of that, weighted diluted shares rose 37% in fiscal 2026, meaning existing investors are being steadily diluted even as the company scales.
B. Riley analyst Nick Giles acknowledged the pressure on Oct. 30, trimming his price target to $51 from $75, though he held his Buy rating on the stock.
At $17.91 per share, the revised target still implies roughly 185% upside, a gap that reflects just how far the stock has fallen, down 65% from its May peak.
The lease portfolio underpinning that target is substantial: as of Aug. 31, Applied Digital had secured approximately $36 billion in contracted revenue across 1.41 gigawatts of capacity spanning five campuses, with CoreWeave (CRWV) and two major hyperscalers as counterparties.
Fiscal first-quarter revenue surged 322% to $341.9 million, though more than half of that figure came from low-margin fit-out work rather than recurring rent, limiting its quality as an earnings driver.
Wall Street’s 16 analysts covering the stock have responded by raising revenue forecasts while simultaneously cutting profitability expectations, a rare and telling divergence.
The consensus now projects a loss of $0.78 per share in fiscal 2028, a sharp reversal from the $0.13 profit expected just three months ago, even as revenue estimates for that year climbed to $1.95 billion, more than triple fiscal 2026’s $611.3 million.
Applying the stock’s five-year average forward revenue multiple of 7.7 times to the fiscal 2028 estimate produces a value of roughly $50 per share, lending some arithmetic credibility to B. Riley’s target.
The broader analyst community sits somewhat higher, with the average price target at $62 as of Oct. 27, up from $44 a year ago, and individual targets ranging from $22 to $93.
Sentiment in the AI infrastructure sector has also been rattled by external forces, including an Oct. 14 selloff driven by rising U.S. rate expectations and Elon Musk’s Oct. 26 warning that the sector could face consolidation and failures.
CoreWeave, the anchor tenant at Applied Digital’s first North Dakota campus and responsible for roughly 30% of its contracted revenue, carries approximately $50 billion in debt of its own, adding counterparty risk to an already complex picture.
Until financing costs decline and base rent clearly outpaces interest obligations, the common stock will likely trade at a meaningful discount to targets that assume a cleaner capital structure.
The January fiscal second-quarter report will be a critical test, with investors watching whether base rent has moved decisively above $65.8 million and whether debt terms on future campuses have improved.
