Is Applied Digital (APLD) Worth Adding to Your Portfolio Below $30? A Closer Look at the Numbers

The Valuation Reality Check

Before getting caught up in Applied Digital’s impressive performance trajectory, investors should pump the brakes. The company’s valuation has become increasingly stretched. Its price-to-sales ratio tells the story — jumping from roughly 5 in 2024 to 38 today. That’s not just growth premium territory; that’s entering bubble-territory valuation levels with virtually no safety net for investors if sentiment shifts.

This matters because when valuations become this extended, even positive news struggles to push stock prices higher, while any disappointment can trigger sharp declines.

Profitability: The Missing Piece

Here’s another reality: Applied Digital isn’t actually making money right now. The company has been on a spending spree to build out its infrastructure and meet surging demand, which has translated into consecutive years of losses rather than profits.

For a company trading at 38x sales, most investors would expect to see a clear path to profitability and positive cash flow generation. Applied Digital doesn’t have that story written yet.

Why the Stock Has Rocketed (And Why It Might Matter)

To be fair, there’s legitimate excitement underlying Applied Digital’s 232% surge over the past year. The company designs, constructs, and operates data centers specifically built for artificial intelligence, cloud computing, networking, and blockchain applications. Over the past decade, APLD has delivered average annual returns of 77% — substantially outpacing most market benchmarks.

The catalyst is real: data centers are absolutely essential infrastructure for AI processing, and demand is exploding. McKinsey research suggests global data center capacity requirements could triple by 2030. Applied Digital is positioned right in the middle of this trend, having recently secured massive deployment contracts, including an $11 billion agreement with CoreWeave to deliver hundreds of megawatts of AI-capable data center capacity over the next 15 years.

The Core Investment Dilemma

So you have a genuinely compelling growth story (AI boom + critical infrastructure positioning) meeting a problematic valuation framework (38x sales, no profitability). This is the classic “right company, wrong price” scenario.

The aggressive capital spending required to maintain competitiveness has created a cash burn situation. Until Applied Digital demonstrates it can translate its massive revenue growth into actual bottom-line profitability, the stock remains a speculative play rather than a fundamental investment.

A Case Study in Market Timing

The Motley Fool’s Stock Advisor research team has a track record worth examining. When they recommended Netflix in December 2004, a $1,000 investment would have grown to $488,222 by 2026. Their April 2005 Nvidia recommendation would have turned $1,000 into $1,134,333 by the same timeframe. With an average annual return of 969% versus the S&P 500’s 196%, their selective stock picking has proven valuable.

Notably, Applied Digital didn’t make the cut for their latest top 10 stock recommendations. That exclusion speaks volumes about professional analysts’ current skepticism regarding the company’s valuation at present stock market levels.

The Smart Approach

Rather than going all-in on Applied Digital below $30, consider a measured approach. The company has tremendous long-term potential given AI infrastructure demand trends, but current valuation metrics don’t leave room for error. If you’re determined to participate, start with a small position and monitor upcoming earnings reports and quarterly progress toward profitability.

The ideal entry point would come with either: (1) a meaningful reduction in valuation multiples, or (2) demonstrated progress toward profitability. Patience typically rewards disciplined investors in cases where the growth narrative is real but the price has run ahead of fundamentals.