Applied Digital’s first quarter results were met with a significant negative market reaction, as revenue fell short of Wall Street expectations despite year-on-year growth. Management attributed the underperformance primarily to technical issues during a shift to an on-demand model in its Cloud Services segment, which temporarily limited revenue generation. CEO Wes Cummins acknowledged these setbacks, noting the company “experienced some technical hurdles as we move from a single tenant to a multi-tenant configuration.” The issues have since been resolved, but the transition period weighed on results.
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Applied Digital (APLD) Q1 CY2025 Highlights:
- Revenue: $52.92 million vs analyst estimates of $64.48 million (22.1% year-on-year growth, 17.9% miss)
- Adjusted EPS: -$0.08 vs analyst estimates of -$0.10 (22% beat)
- Adjusted EBITDA: $10.02 million vs analyst estimates of $16.94 million (18.9% margin, 40.9% miss)
- Operating Margin: -35.8%, up from -77.8% in the same quarter last year
- Market Capitalization: $2.31 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Applied Digital’s Q1 Earnings Call
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Nick Giles (B. Riley Securities) asked about the updated split between on-demand and contracted Cloud Services and how these changes affect total value. CEO Wes Cummins explained that two clusters moved to on-demand and technical issues have now been resolved.
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Thomas Shinske (Cantor Fitzgerald) inquired about the impact of Macquarie and SMBC’s involvement on leasing momentum. Cummins responded that these partnerships have increased customer confidence in Applied Digital’s ability to complete projects.
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Rob Brown (Lake Street Capital Markets) questioned the remaining steps and capital needs for the Ellendale facility. CFO Saidal Mohmand detailed ongoing capital expenditures and indicated construction is on track, with key equipment already delivered.
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Mike Grondahl (Northland Securities) sought clarity on whether external pressure from hyperscale customers influenced the decision to review the Cloud Services business. Cummins and Mohmand confirmed that customer feedback and broader market trends contributed to the decision.
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George Sutton (Craig-Hallum) asked about the implications of selling the Cloud business during lease negotiations. Cummins clarified that there are no strict requirements from customers but sees the timing as strategic for both business segments.
Catalysts in Upcoming Quarters
Going forward, the StockStory team will be closely monitoring (1) the pace at which Applied Digital secures large leasing agreements for the Ellendale campus, (2) the outcome of the Cloud Services business review and any subsequent divestiture or restructuring, and (3) the company’s ability to execute construction milestones and bring new data center capacity online without significant cost overruns. Additionally, customer contract renewals in Bitcoin hosting and evolving industry dynamics will be key areas of focus.
Applied Digital currently trades at $9.50, up from $5.38 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).
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