Should You Buy the Dip in Applied Digital Stock Today?

Applied Digital (APLD) crushed Wall Street expectations on virtually every metric in its fiscal Q3. Shares still closed down nearly 8% versus their previous close on April 9. The post-earnings selloff even crashed APLD below its 20-day moving average (MA), indicating that the bearish momentum will likely continue in the near term. 

Year-to-date, Applied Digital stock is now down more than 35%. 

What Made Applied Digital Stock Slip on Thursday?

Beyond strong headline numbers, the Q3 print flagged legitimate concerns beneath the surface that warrant caution in buying the dip. 

APLD shares aren’t particularly attractive given the firm’s GAAP net loss widened significantly to about $101 million in the third quarter. 

This was mostly due to a $60 million non-cash write-down related to the reclassification of its cloud services business. 

Meanwhile, free cash flow deteriorated sharply to negative $720 million, reflecting the enormous capital needed for Applied Digital’s data center buildout strategy. 

A sharp increase in stock-based compensation to $39.3 million in Q3 may be hurting sentiment as well because it dilutes the company’s adjusted profitability story. 

Note that APLD now looks headed to challenge its 200-day MA next, which, if breached, could notably accelerate downward momentum in the coming days and weeks.

Where Options Data Suggests APLD Shares Are Headed

Caution is warranted in buying Applied Digital shares also because the company did not announce a new hyperscaler lease agreement on the earnings call. 

Heading into the quarterly release, expectations were high that management would disclose at least one additional lease contract — particularly given prior commentary about advanced talks with an investment-grade hyperscaler for 900 MW of capacity.  

APLD’s top-line beat was partly driven by relatively low-margin contributions from tenant fit-out services and power passthroughs that are less indicative of recurring, high-quality earnings power.  

According to Barchart, the put-to-call ratio on options contracts expiring mid-June also suggests a strong bearish skew, with the lower price on those contracts calling for significant further downside to about $18. 

How Wall Street Recommends Playing Applied Digital

Despite these concerns, Wall Street remains bullish on APLD stock for the longer term. 

The consensus rating on Applied Digital currently sits at a “Strong Buy,” with the mean price target of about $49 indicating potential upside of nearly 100% from here. 

This article was created with the support of automated content tools from our partners at Sigma.AI. Together, our financial data and AI solutions help us to deliver more informed market headline analysis to readers faster than ever.