Top Risks of Buying APLD

1. Unprofitable and Burning Cash

• Net loss: APLD lost over $244 million in the last 12 months.
• Negative cash flow: The company regularly issues debt or equity to raise funds.
• No clear timeline to profitability despite growing revenue.

📌 Implication: If revenue growth stalls or capital dries up, APLD could face liquidity issues.

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2. Heavy Debt Load

• APLD has nearly $1 billion in total debt versus ~$69M in cash (as of recent filings).
• Debt is being used to build out large-scale AI data centers, but high leverage increases financial risk.

📌 Implication: Rising interest rates or delayed project payoffs could cause distress.

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3. Execution Risk on Big Projects

• APLD’s future revenue depends heavily on:
  • Building out new AI/data center campuses.
  • CoreWeave’s lease commitment (15-year deal worth ~$7B).
  • Delivering uptime and efficiency at scale.

📌 Implication: Delays, cost overruns, or a failed tenant rollout could severely hurt margins or reputation.

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4. Customer Concentration

• A significant portion of future revenue is tied to CoreWeave and a few other large tenants.
• If any one customer delays, defaults, or pulls out, APLD’s model could unravel quickly.

📌 Implication: High dependence on a small client base increases volatility.

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5. Valuation Risk

• APLD trades at ~10–14× price-to-sales, which is rich for an unprofitable company.
• Analysts are bullish, but much of that is based on future revenue, not present earnings.

📌 Implication: Any negative news can trigger sharp sell-offs (stock is already highly volatile).

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6. Industry and Regulatory Risk

• Operating large data centers and crypto/AI infrastructure draws high energy, environmental, and regulatory scrutiny.
• Power costs, zoning, or legislation could impact new builds.

📌 Implication: Projects may face delays or higher operating costs due to regulation or utility price spikes.

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7. Dilution Risk

• APLD has a history of issuing new shares to raise capital.
• More dilution could be required to fund future expansion or cover operational costs.

📌 Implication: Even if the business grows, existing shareholders could see their ownership reduced.

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🧾 Summary Table

Risk Type	Impact
Financial Losses	Still unprofitable; heavy operating losses
High Leverage	~$1B debt creates pressure
Execution/Build Risk	Must deliver $B+ data centers on time
Customer Concentration	CoreWeave dependence = single-point risk
Valuation Stretch	High P/S and speculative multiple
Regulatory Sensitivity	Energy use + land use rules matter
Equity Dilution	Future fundraising may dilute shareholders

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✅ Bottom Line

APLD is a high-risk, high-upside stock. It could benefit massively from the AI data center boom—but that growth is not yet fully realized, and the company’s financial foundation is fragile.

It’s best suited for speculative investors who:

• Understand and accept potential 30–50% drawdowns.
• Are bullish on AI infrastructure growth.
• Can monitor execution milestones closely.

If you want, I can help set up alerts for earnings, debt issuances, or CoreWeave contract updates to stay ahead of the key risk triggers.

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Heavy capex could hurt Applied Digital stock

While the CRWV agreement improves short-term visibility into Applied Digital’s future revenue and lends credibility to its GPU cloud ambitions, investors are advised to exercise caution in buying its shares at current levels.

Why? Partially because the company based out of Dallas, TX has plans of investing as much as $50 million per month over the next year-and-a-half.

That’s substantial for a business that generated just $166 million in revenue last year.

The risk here is: even with CoreWeave as an anchor tenant, the firm’s remaining excess capacity will weigh on gross margins unless additional customers are secured.

In its latest reported quarter, APLD’s Cloud Services segment suffered a nearly $36% sequential revenue decline, largely due to technical issues related to transitioning from single-tenant to multi-tenant models.

While these issues have reportedly been resolved, the volatility raises questions about operational execution at scale.

Plus, depreciation expenses are increasing, driven by newly completed facilities that have yet to produce matching revenue, creating a lag effect that could compress earnings even as top-line revenue improves, which may also weigh on APLD shares over the next 12 months.

APLD’s share valuation is a major concern

Investors should consider pulling out of the AI stock following the recent rally because even after factoring in the CoreWeave deal, it looks overvalued at the current price of more than $13.

A conservative estimate for the company’s forward price-to-sales at the time of writing is nearly 6x, including the CRWV benefit, which is significantly lofty compared to the industry average of about 3.5x only.

More importantly, the said valuation metric sits well above APLD shares’ own 5 year median P/S of less than 2x.

Finally, given CoreWeave’s likely need for competitive pricing in its contracts, it’s unclear whether the deal will significantly improve Applied Digital’s net margins or just boost its top-line figure.

In conclusion, with a market cap now approaching $3 billion and no sustained profitability in sight, Applied Digital stock needs near-perfect execution in a rapidly evolving, capital-heavy sector. That’s a tall order, even with CRWV on board.