Applied Digital stock jumps on $5.2B AI lease: why analysts see more upside ahead

Shares of Applied Digital APLD climbed more than 10% on Tuesday after the company announced a major long-term agreement with a large cloud-computing customer, underscoring the sustained demand for artificial intelligence infrastructure despite recent volatility in technology stocks.

The data-center developer said an unnamed US-based investment-grade hyperscaler had signed a 15-year lease for 210 megawatts of capacity at a new AI-focused campus currently under development.

The agreement is expected to generate at least $5.2 billion in contracted revenue, with extension options potentially increasing the total value to $12.7 billion over a 30-year period.

The announcement helped lift investor sentiment toward the stock, which has emerged as one of the strongest performers in the AI infrastructure space over the past year.

New lease expands AI infrastructure footprint

Applied Digital said the new facility, known as Delta Forge 2, will be located in a Southern US state, although the company declined to reveal either the exact location or the identity of the customer.

Operations at the site are expected to begin in 2028.

The hyperscaler involved in the transaction is already a customer of Applied Digital and has previously signed leases at two of the company's other facilities.

The latest deal adds to a growing portfolio of AI-focused infrastructure projects.

Applied Digital currently has one AI factory under construction in North Dakota, another partially operational facility in the same state, and Delta Forge 1, another campus being developed elsewhere in the South.

The company has increasingly positioned itself as a provider of large-scale infrastructure needed to support growing AI workloads, as technology giants continue investing billions of dollars into data centers and computing capacity.

Total contracted lease revenue under existing agreements has reached $36 billion, rising to roughly $86 billion if all renewal options are exercised.

About 70% of that revenue is tied to U.S. investment-grade hyperscaler customers.

Analysts grow more bullish on growth outlook

The lease announcement prompted several brokerages to reiterate positive views on the company and raise their valuation targets.

Needham analyst John Todaro said he remained encouraged by the pace at which Applied Digital continues to secure new customers across its power and infrastructure portfolio.

"We continue to be pleasantly surprised with the pace Applied Digital is signing additional capacity across its power portfolio," Todaro wrote in a research note.

Needham maintained its Buy rating and increased its price target to $83 from $66.

Compass Point also reiterated a Buy recommendation with a $70 target, while Citizens maintained its Market Outperform rating and a $60 target price, highlighting that the latest agreement marks the third long-term contract signed with the same customer.

Meanwhile, Lake Street raised its target price to $90 from $70, citing the value created by the new lease and improving prospects for future agreements.

According to Lake Street, Applied Digital continues to market approximately 1.4 gigawatts of data-center capacity, providing substantial room for future expansion.

AI demand continues to support stock performance

The latest agreement adds to Applied Digital's growing contracted income pipeline, which now stands at nearly $2.1 billion in net operating income.

The company's shares have risen roughly 60% this year and have more than tripled over the past 12 months as investors increasingly bet on the long-term growth of AI infrastructure.

Notably, the stock has continued to outperform despite recent headwinds, including Nvidia's decision to exit its stake in the company.

Applied Digital also participated in Friday's broader technology selloff, when stronger-than-expected US employment data prompted investors to reassess the outlook for Federal Reserve policy and interest rates.

However, Tuesday's rally suggests investors remain focused on the longer-term demand outlook for AI infrastructure, where hyperscalers continue to commit billions of dollars to secure computing capacity.

Wall Street's confidence remains strong.

According to FactSet data, all 13 analysts covering the stock currently maintain Buy ratings, reflecting optimism that Applied Digital can continue converting its expanding power portfolio into long-term revenue-generating contracts.