Can New AI-Focused Leases Offset APLD's Cloud Segment Decline?

Applied Digital APLD is undergoing a strategic pivot to re-anchor its business around hyperscale data center leasing, particularly AI-focused infrastructure, as its Cloud Services segment struggles to scale profitably. While the third-quarter fiscal 2025 revenues rose 22% year over year to $52.9 million, the Cloud business delivered only $17.8 million, down sequentially due to a shift toward on-demand capacity and technical issues during a multi-tenant configuration rollout.In contrast, APLD’s Data Center Hosting segment continues to gain momentum. Backed by financing agreements from Macquarie ($5 billion) and SMBC ($375 million), the company is building out its Ellendale campus with 400MW of critical IT load, with the first 100MW facility expected to go live in the fourth quarter of 2025. Notably, this pipeline includes a landmark $7 billion lease deal with CoreWeave, offering recurring revenues over 15 years and validating the economic promise of its HPC infrastructure.However, the Cloud Services business remains a drag, using more than $10 million in the fiscal third quarter alone and facing mounting competitive pressure from CoreWeave CRWV, now a data center tenant and rival in GPU computing. Applied Digital is exploring a sale or strategic spinout of this business, acknowledging it poses a point of friction for hyperscaler leasing negotiations and doesn’t align with a prospective REIT transition. The company’s ability to offset cloud losses hinges on monetizing Ellendale’s AI-ready capacity. With 1.4GW in planned buildout and active lease discussions, APLD has a compelling footprint. But execution risks remain—finalizing leases and navigating high CapEx ($30–50 million/month), amid intense sectoral competition.APLD’s strategic pivot toward leasing hyperscale AI data center capacity, exemplified by the CoreWeave deal, offers a clearer path to profitability. Yet, until the Cloud Services business is divested or offset, its capital burden and competitive overlap may continue to suppress margins and investors.Competitive SnapshotMarathon Digital Holdings MARA is transforming into a vertically integrated digital energy and infrastructure firm. It’s actively developing AI-aligned modular data centers with low-latency capabilities and is in advanced talks with compute OEMs to pilot AI inference workloads in 2025.Marathon Digital’s custom-built 2PIC immersion cooling and power-optimized sites in Texas and North Dakota are tailored for both mining and AI use cases. Its low-cost power generation strategy, including wind and flare gas, supports sustainable scalability. While still focused on Bitcoin, Marathon Digital sees AI infrastructure as a key monetization path, offering high-IRR expansion opportunities through stranded energy and flexible compute demand alignment.Core Scientific CORZ is aggressively scaling its AI-aligned infrastructure via a major partnership with CoreWeave. The company is building out 570 MW of high-density capacity, including a 260 MW site in Denton, TX, expected to host one of North America's largest GPU clusters. CoreWeave funds most of the CapEx under a take-or-pay model, significantly reducing Core Scientific’s capital burden. The company plans to expand to 590MW by 2027 and diversify its customer base to reduce CoreWeave’s share of capacity below 50% by 2028. With a growing enterprise pipeline and minimal capital exposure, Core Scientific is positioning itself as a capital-light leader in AI infrastructure.APLD’s Price Performance, Valuation and EstimatesShares of APLD have surged 20.7% in the year-to-date period against the industry’s decline of 3.5%.Image Source: Zacks Investment ResearchFrom a valuation standpoint, Applied Digital trades at a forward price-to-sales of 7.97X, above the industry average as well as its five-year median of 5.03X. APLD carries a Value Score of F.Image Source: Zacks Investment ResearchThe Zacks Consensus Estimate for Applied Digitals’ fiscal 2026 earnings implies a 73.6% rise year over year.Image Source: Zacks Investment ResearchThe stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in the coming year. While not all picks can be winners, previous recommendations have soared +112%, +171%, +209% and +232%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Marathon Digital Holdings, Inc. (MARA): Free Stock Analysis Report Applied Digital Corporation (APLD): Free Stock Analysis Report Core Scientific, Inc. (CORZ): Free Stock Analysis Report CoreWeave Inc. (CRWV): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks