Applied Digital Corporation (NASDAQ: APLD) stock is down 92% YTD as investors become wary of the crypto space. So, are blockchain and crypto mining stocks doomed or is this the perfect time to buy the dip? Read on for some analysis of APLD stock.
What is Applied Digital (Applied Blockchain)?
Applied Digital, which recently changed its name from Applied Blockchain, Inc, designs, develops and operates next-generation datacenters across North America. The company provides digital infrastructure solutions to the rapidly growing high-performance computing (HPC) industry.
High-profile crypto companies that Applied Digital counts as clients include Bitmain, F2Pool, Marathon (NASDAQ: MARA), and GMR.
The company went public via IPO in April 2022, at $5, with a float of nine million shares. Today Applied Digital Corp has 97.4 million shares outstanding and a share price of $1.94.
Distressed Crypto Assets Fund
Applied Digital Corp recently launched an independent fund aimed at acquiring distressed cryptocurrency assets. The fund and its assets, which may include mining hardware and digital infrastructure assets, will be jointly managed by a newly formed entity, Highland Digital, a 50/50 joint venture between Applied Digital and GMR (a customer of Applied Digital).
The independent fund is targeting raising capital of up to $100m from outside investors.
Applied Digital Chairman and CEO Wes Cummins, said:
The creation of this fund and associated joint venture again demonstrates our creativity and strong industry relationships that position us to capitalize on this volatile market,
We have proven ourselves as a leading next-generation datacenter operator and hosting partner and look forward to deepening our partnership with GMR to take advantage of the opportunities we are seeing on a weekly basis.
Cummins believes any successful acquisitions by Highland Digital could create opportunities for Applied Digital to grow its hosting customer base. Applied Digital doesn’t plan to issue equity to raise capital for the fund.
Furthermore, APLD's infrastructure knowledge and GMR’s in-depth experience in managing mining hardware through cryptocurrency market cycles present a promising combination. Indeed, this could ensure they're in an excellent position to take advantage of the current distressed environment.
APLD Stock Financials
Applied Digital will report its next quarterly update in February 2023. FactSet analyst consensus expects EPS of -$0.07 and sales of $12m.
The company has a forward P/E of 5.5 (what is a P/E ratio?) and a P/BV of 2.6.
Sales in the fiscal year 2022 exceeded $8.5m. In Q3, 2023, sales exceeded $6.9m, and FactSet estimates for full-year 2023 come in around $105.3m. However, the company will not be providing sales guidance for its next two quarters as it is unclear when it will energize its new facilities.
APLD Stock Growth Potential and Investment Risks
Any stock linked to the crypto market appears inherently risky as the industry falls out of favor. However, APLD has three things going for it. It doesn’t directly mine for crypto, it is focused on a diversified customer base, and its digital infrastructure is used by big industry names.
Next-generation datacenters have widespread appeal as tech companies vie for fast speeds and security. Therefore, the company’s digital infrastructure solutions are likely to appeal to the rapidly growing HPC industry.
Cryptocurrency-related stocks are extremely volatile and may be affected by external factors such as financial, regulatory or geopolitical events. Indeed, macroeconomic conditions suggest we’re slipping into a Bitcoin winter.
Nevertheless, when one company goes bankrupt, the remaining competitors can bid for distressed assets. This is something Applied Digital has its eye on and is always on the lookout for additional sites with good power supply.
As the industry is undergoing a period of stress, Applied Digital is exposed to counterparty risk through its associations with its customers, including Bitmain and Marathon. Bitmain operates from its North Dakota site, as do F2Pool and GMR.
In its recent earnings call, Cummins stated that Marathon is one of the best counterparties, if not the best of the publicly-traded miners in the industry. That’s because it has a relatively clean balance sheet and no imminent debt repayments due.
Applied Digital purchases power and leases out its HPC applications and hosting services to customers. It is building a 500MW facility for Bitcoin mining while also aiming to attract HPC customers to diversify its client base and keep cash flowing. It also hopes to scale its GPU-based machine-learning application over the next year or two.
While Applied Digital doesn’t currently have any spare capacity to offer, it is actively seeking capacity from other customers to better serve the industry. Furthermore, it is focused on obtaining ultra-low-cost digital infrastructure for its HPC offerings.
Is APLD a Good Investment?
Stocks operating in the crypto landscape are inherently linked to the price of Bitcoin. Therefore, when the Bitcoin price falls, it’s likely the APLD share price falls too, and vice versa when the price of Bitcoin rises.
Applied Digital is a risky stock, but one that is making money and has a bit of a buffer against the volatility of the crypto industry. It could also potentially benefit from increased demand for hosting amid constrained supply.
Applied Blockchain in London
There is another company named Applied Blockchain, which could cause you confusion. The London-based Applied Blockchain is headed by founder Adi Ben Ari. This Applied Blockchain is a Web 3.0 development company that builds blockchain solutions to bridge the gap between Web 2.0 (where we are now) and Web 3.0 (where we want to be).
The fundamental attraction of blockchain technology is that it can bring technical efficiency in a decentralized way that provides trust and security. This is what entices people to blockchain technology and is the reason there are still many blockchain enthusiasts despite the controversies surrounding Bitcoin and the recent collapse of FTX.
Applied Blockchain claims to be building the necessary tech that will bridge this gap and enable a bright future for blockchain adoption.
It has a team of 100 developers, mainly based in London, with a presence in Portugal. Its customers are based all over the world, and several are in the US. Applied Digital recently worked with Ledger to implement Ethereum into the Ledger product. APMD has also worked with some well-known traditional companies, including Intel, Shell, Vodafone, Lloyd’s Register and the United Nations.