This $30 Stock Could Be Primed for a Breakout

Finding cheap stocks that are primed for a major breakout isn't always easy, but I may have identified one: Applied Digital (NASDAQ: APLD). Applied Digital is currently trading slightly below $30 per share and is well off its high of about $50 established in June. Applied Digital is a major player in the artificial intelligence (AI) data center space, and it continues to report impressive growth.

But is it primed for a breakout? Let's take a look.

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Applied Digital's business is booming

Applied Digital's business is pretty simple: It builds data centers and then rents them out. This is a complex business, as it must identify prime building spots, coordinate construction, and find clients to rent the centers. Still, it's a business that is booming thanks to huge and unprecedented AI computing demand.

This growth is showing up in a big way, as Applied Digital's revenue soared 407% to nearly $260 million during its fourth quarter of fiscal year 2027 (ending May 31). Wall Street expects huge growth over the next few years as more of its construction sites come online. For 2027, it expects 37% revenue growth, but that figure jumps to 127% in FY 2028. Those are exciting projections, but there is just one problem: Applied Digital isn't profitable and has no plans to be in the near future.

Building data centers isn't cheap, and it requires a significant amount of funding to do so. With Applied Digital experiencing the greatest data center boom it will ever see, it must strike while the iron is hot and take advantage of the situation, even if it means operating at a loss for a few years. This makes it a risky stock, but if it comes out on the other side OK, it will be a great investment.

The market normally compensates risk with valuation, with riskier stocks trading at a lower valuation to make up for the higher risk. This is also where greater potential for gains comes from, since higher-risk assets should provide greater returns, albeit at a lower success rate.

The problem is, the market is betting that Applied Digital will be nearly a guaranteed win.

APLD PS Ratio data by YCharts.

At 13 times sales, the stock isn't cheap. However, that doesn't incorporate the fact that a lot of Applied Digital's data centers don't come online for a while, which could make this stock look far more undervalued than it appears. However, we'll have to see if that comes to fruition over the next few years.

As a result, Applied Digital will likely rise and fall with the demand for AI stocks. When demand is high, Applied Digital's stock will soar. When it's low (like it is right now), it will sink. Until Applied Digital can reach the point where it's a profitable business, this association with AI investing demand will continue. I think there are far better AI investments out there right now besides Applied Digital.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.