Everyone Loves Applied Digital Again. Here's Why You Should Remain Skeptical

"Ironically, the catalyst for Applied Digital's rally was its announcement of a development loan facility with Macquarie Group to provide up to $100 million initially to fund pre-lease costs for new AI-optimized data center campuses. The facility supports early-stage planning and construction amid negotiations with a hyperscaler. Investors appeared to overlook the debt worries from just days earlier, focusing instead on the funding as a positive step for growth."

"Prior to the rebound, investors had grown wary of Applied Digital's leverage resulting from its aggressive buildout of AI data centers. In its fiscal first quarter, the company reported $687 million in current and long-term debt against just $74 million in cash and equivalents. In November, a subsidiary issued $2.35 billion in 9.25% senior secured notes due 2030 to finance new facilities and refinance obligations."

"Applied Digital ( NASDAQ:APLD ) shares surged 16.5% on Friday, recovering from a sharp 17.5% decline just two days prior. The Wednesday plunge stemmed from growing investor concerns over rising debt levels in the artificial intelligence (AI) data center sector, with Applied particularly exposed due to its capital-intensive expansion. The rebound was primarily fueled by Micron Technology ( ) reporting stronger-than-expected fiscal first-quarter results Thursday, with guidance signaling robust AI memory demand outstripping supply through 2026."

Applied Digital shares surged 16.5% after a recent 17.5% drop as investors shifted focus from leverage concerns to signs of strong AI demand. Micron's better-than-expected results and guidance pointed to memory demand outstripping supply through 2026, reinforcing infrastructure growth expectations. Applied Digital secured a development loan facility with Macquarie for up to $100 million to fund pre-lease costs and early construction while negotiating with a hyperscaler. The company reported $687 million of debt versus $74 million of cash in the quarter and a subsidiary issued $2.35 billion of 9.25% notes due 2030 to finance expansion and refinance obligations.

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