Is Applied Digital Stock an Undervalued AI Stock to Buy? | APLD Stock Analysis
Summary
Parkev provides an analysis of Applied Digital Corporation (APLD) following a significant 19% drop in its share price over a five-day period in June 2026. His main thesis suggests that the AI industry is reaching a tipping point where large hyperscalers will exceed their capital expenditure limits. Consequently, he predicts that starting in 2027, these giants will shift from building their own infrastructure to renting capacity from providers like Applied Digital.
From a financial outlook perspective, Parkev projects that Applied Digital will reach a cash-flow break-even point in 2028. He forecasts a significant surge in free cash flow, starting at $850 million in 2029 and scaling to $6.3 billion by 2035. However, he highlights major risks, specifically a very high weighted average cost of capital (WACC) of 19.81%, driven by a high beta and the capital-intensive nature of the business model where investments are recouped slowly over long-term leases.
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Reasoning: Parkev calculates the intrinsic value of the stock to be $35 per share based on projected free cash flows and a high discount rate (WACC) of 19.81%. With the current market price sitting at approximately $38, he views the stock as fairly valued but not undervalued. He notes the high risk reflected in the company's beta of 3.0 and the uncertainty of long-term demand after initial 15-year lease agreements end, leading him to issue a hold rating rather than a buy.