Applied Digital Corporation

Applied Digital Corporation (NASDAQ: APLD) is a designer, developer, and operator of next-generation digital infrastructure across North America. It provides digital infrastructure solutions and cloud services for high-performance computing (HPC) and artificial intelligence (AI). Its segments include Blockchain data center hosting (the Datacenter Hosting Business), cloud services, through a wholly owned subsidiary (the Cloud Services Business) and HPC data center hosting (the HPC Hosting Business).

Key Business & Financial Updates

• Financial Performance in Fiscal Fourth Quarter 2024: During the fiscal fourth quarter of 2024, Applied Digital reported revenues of USD 43.7 million. However, the company recorded a significant net loss of USD 64.8 million. The adjusted net loss for the quarter amounted to USD 45.3 million, primarily driven by USD 15.5 million in expenses related to facilities and equipment that were not yet generating revenue. Despite these challenges, the company achieved an adjusted EBITDA of USD 4.8 million for the period, reflecting steady operational progress.

• Full-Year Financial Results for Fiscal Year 2024: For the fiscal year ending May 31, 2024, Applied Digital generated total revenue of USD 165.6 million, a sharp increase from USD 55.4 million in 2023. Nevertheless, the company faced a net loss of USD 149.7 million, which was substantially higher than the USD 45.6 million loss reported in the previous year. The adjusted net loss for the year stood at USD 77.5 million, negatively impacted by USD 38.5 million in expenses linked to non-revenue-generating facilities and equipment. The adjusted EBITDA rose to USD 24.5 million from USD 0.8 million in fiscal 2023, reflecting improved business operations.

• Recent Operational Milestones: Post fiscal year-end, the company successfully secured over USD 150 million through various financing arrangements and the settlement of the Garden City contingency. Additionally, on July 26, 2024, Applied Digital extended the exclusivity period under its letter of intent (LOI) for leasing the Ellendale, North Dakota HPC data center campus. On July 30, 2024, the conditional release of USD 25 million in escrowed funds from the sale of the Garden City, Texas facility was achieved, providing further financial support to the company's operations.

• Restoration of Ellendale Data Center Hosting Facility: By June 28, 2024, the transformer-related repairs at the Ellendale Data Center Hosting facility were completed, restoring the site to full operating capacity. Earlier in the year, the facility experienced a power outage, which affected its operations for most of the quarter. However, the outage was limited to the data center hosting operations and did not affect the ongoing construction of the high-performance computing (HPC) data center. The timely restoration highlights the company’s efforts in mitigating operational risks and enhancing its infrastructure reliability.

• Expansion of Cloud Services and High-Performance Computing: Applied Digital continued its expansion into cloud services by catering to high-performance computing requirements, particularly for artificial intelligence and machine learning applications. In fiscal 2024, the company onboarded a new client, Together AI, and successfully brought four cloud clusters online in the fourth quarter. This led to USD 29.0 million in cloud services revenue. Furthermore, construction commenced on the company's 100 MW HPC facility in Ellendale, North Dakota, designed to provide ultra-low-cost and efficient infrastructure for advanced computing applications. The company has also secured an LOI with a U.S.-based hyperscaler for 400 MW capacity, reflecting its strategic focus on growth in the HPC space.

• Progress in Data Center Hosting Operations: As of fiscal year-end, Applied Digital operated 286 MW of data center hosting capacity, with its Jamestown, North Dakota facility running at full capacity throughout the year. The Ellendale facility, which had experienced transformer failures, was restored to 80% operating capacity by year-end and returned to full capacity by June 28, 2024. In addition, the company finalized the sale of its Garden City, Texas hosting facility to Marathon in April 2024, contributing USD 25 million to the company from escrowed funds.

• Cash Flow and Capital Management: Throughout fiscal 2024, Applied Digital experienced a net decrease of USD 15.1 million in cash, cash equivalents, and restricted cash. The decrease was primarily due to substantial investments in property and equipment, alongside debt repayments. However, these outflows were partially offset by borrowings, common stock issuance, and cash generated from operating activities. The company remains focused on managing its cash flow effectively while continuing to invest in its infrastructure and growth initiatives.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) for the 14-day period stands at 36.77, indicating a downturn trend with the potential for further momentum as the stock has broken below an important support of USD 3.80- USD 4.00. Currently positioned below both the 50-day and 200-day Simple Moving Averages (SMA), the stock faces challenges short- to medium-term resistance levels.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘WATCH’ rating has been given to Applied Digital Corporation (NASDAQ: APLD) at the current market price of USD 3.30 as of September 04, 2024, at 09:15 am PDT. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is September 04, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.s

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.