B. Riley keeps $66 Applied Digital target after fiscal Q4 EBITDA beat
B. Riley Securities reiterated its Buy rating and $66 price target for Applied Digital (NASDAQ: APLD) after the AI infrastructure developer reported fiscal fourth-quarter adjusted EBITDA of $42.4 million. The result exceeded B. Riley's $24.6 million estimate and the $25.6 million consensus forecast.
Applied Digital reported $258.7 million in revenue for the quarter ended May 31, including $152.4 million from tenant fit-out services. B. Riley said those fit-out payments helped drive the EBITDA beat, while HPC base rent of $44.1 million matched its estimate.
B. Riley based its assessment on an improving construction record and expectations that future capacity will command higher lease rates. Applied Digital delivered the first phase of Building 2 at Polaris Forge 1 on June 30, adding 75 MW on schedule and increasing live capacity at the campus to 175 MW.
B. Riley described the delivery as evidence that Applied Digital can execute its larger development pipeline. Building 2 took 12 months to complete, compared with 24 months for the first building, a reduction management attributed to better construction sequencing.
Applied Digital is negotiating leases covering 100 MW of uncontracted capacity at Polaris Forge 2 and 150 MW of expansion capacity across Delta Forge 1 and Delta Forge 2. B. Riley expects the potential agreements to carry higher rates than the existing leases, though all 250 MW remains under negotiation.
The company has about 1.4 GW of contracted IT load across five campuses, supporting approximately $36 billion of base-term revenue, according to the bank. U.S.-based investment-grade hyperscalers back more than 70% of contracted revenue, a setup B. Riley sees as supportive of financing terms and durable lease cash flows.
Borrowing costs have already declined. Applied Digital priced $2.15 billion of senior secured notes funding 200 MW at Polaris Forge 2 with a 6.750% coupon, below the 9.250% coupon on its legacy notes due in 2030. B. Riley expects financing costs could improve further as campuses enter service and tenant credit supports the projects.
Power supply represents another part of the bank's thesis. Applied Digital owns about 10% of Base Electron, which is developing approximately 1.2 GW of natural-gas generation in the Dakotas with regional utility partners. B. Riley said that generation, alongside existing utility relationships, could allow current campuses to expand beyond their contracted capacity once more power becomes available.
B. Riley currently or within the past 12 months provided investment-banking services to Applied Digital and received compensation. The bank also said it expects to seek additional investment-banking business from the company.
B. Riley said power availability and supply-chain constraints will govern the pace of growth. The projects require substantial capital and remain exposed to construction delays or cost overruns.
The bank also identified weaker-than-forecast AI adoption as a demand risk. Future lease pricing could face pressure, while existing customers may choose not to renew capacity contracts on current terms.