Why Applied Digital Stock Is Sinking Today
Key Points
Applied Digital announced it is raising $2.35 billion to fund the buildout of two additional data centers at its Polaris Forge campus in North Dakota.
The two data centers will add a combined 250 megawatts of capacity.
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Shares of Applied Digital (NASDAQ: APLD) are falling on Tuesday, down 7.8% as of 2:53 p.m. ET. The drop comes as the S&P 500 (SNPINDEX: ^GSPC) gained 0.2% while the Nasdaq Composite (NASDAQINDEX: ^IXIC) fell 0.2%.
The artificial intelligence (AI) data center operator announced another major capital raise on Monday. The $2.35 billion it intends to raise will fund the construction of two data center facilities at its Polaris Forge campus in Ellendale, North Dakota.
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Applied Digital is taking on more debt
The company's ambitious plans for Polaris Forge require a significant amount of capital, and Applied Digital does not have the cash flows to fund its construction without relying heavily on debt and stock sales. The $2.35 billion it announced yesterday will be due in 2030.
Image source: Getty Images.
While the opportunity for Applied Digital and other AI data center builders is massive, the risks are just as big. This is just the latest major capital raise, but more will inevitably come. Applied Digital is walking a tightrope, and if AI demand doesn't live up to the hype -- and I think that is a distinct possibility -- things could go south fast.
Given these significant risks, I'd stay away from Applied Digital stock.
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Johnny Rice 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.
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