Better Data Center Stock: Applied Digital vs. Riot Platforms

As the demand for artificial intelligence (AI) compute has increased exponentially, so has the need for massive data centers to process all that data at high speeds. It has led to a boom in not just the chips and AI infrastructure that processes that data, but also in the construction and development of actual data centers.

Applied Digital (NASDAQ: APLD) and Riot Platforms (NASDAQ: RIOT) are both data center developers that began building high-performance computing centers for Bitcoin and cryptocurrency mining. But now, they are pivoting to AI data centers.

Applied Digital is further along in its pivot, and its stock price has been soaring, up some 260% over the past 12 months. Riot, which still makes more revenue from Bitcoin mining, has been hurt by the decline and volatility in the price of Bitcoin. But it is ramping up its data center development operations where it sees greater long-term growth potential.

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Wall Street is bullish on both of these stocks, as 100% of the analysts who cover them rate them a buy. Applied Digital has a median price target of $43.50 per share, which would suggest 33% upside over the next 12 months. Riot Platforms has a median price target of $28 per share, which would indicate an expectation for 95% growth.

Which of these two data center stocks is a better buy? Let's take a look.

Meteoric growth for Applied Digital

For Applied Digital, the excitement stems from its meteoric growth. In the most recent quarter, it grew revenue by 250% year over year and reduced its net loss by 76%.

It's driven by long-term contracts signed by two different hyperscalers, including CoreWeave, at its Polaris Forge 1 facility. It also signed a hyperscaler for its soon-to-open Polaris Forge 2 facility in North Dakota.

It is building a Polaris 3 center, due to open in 2027, and just broke ground on Delta Forge 1 in an unnamed Southern U.S. state. That, too, will open in 2027.

The company is pumping billions into these data centers, but it is targeting $1 billion in net operating income in five years. It has already secured $16 billion in long-term lease agreements with CoreWeave and the other unnamed hyperscaler.

Riot Platforms signs deal with AMD

Unlike Applied Digital, Riot Platforms is generating profit, mainly from its Bitcoin mining operations.

In its most recent quarter, Riot generated a record $180 million in revenue and made $104 million in net income, up from a $154 million net loss a year ago.

This was for the quarter ended Oct. 30, so it was just before the price of Bitcoin started tanking heavily. Bitcoin was at more than $110,000 per token at that point; now it's down to some $67,000.

A big reason for Riot's pivot to AI data centers is to take advantage of its expertise and facilities in high-performance computing, but also to tap into the massive growth potential of data centers and diversify its revenue beyond volatile Bitcoin mining.

Bitcoin mining accounted for about 90% of its total revenue in the last quarter, but that is about to change. It announced in January that it was building a new data center facility at its Rockdale location in Texas and that it would be contracted out to AMD. The 10-year lease agreement could bring up to $1 billion in revenue. It is anticipated the transaction will contribute roughly $25 million in annual net operating income.

It is also converting crypto mining facilities in Texas and Kentucky to data centers.

While the capital expenses could be a short-term drag on earnings, most analysts anticipate revenue to increase in fiscal 2026. Investors should stay tuned for Riot's next earnings report on Feb. 23 for more news on the data center pivot and the outlook. But in the longer term, analysts are projecting $1 billion in revenue and $125 million in net income by 2028.

I think both of these stocks are long-term buys, but if I had to pick one, I'd go with Riot Platforms. It has actual earnings and should be able to advance and fund its data center aspirations from its Bitcoin operations. Plus, the stock is relatively cheap, trading at 20 times earnings. One concern is the potential for a further slide in crypto and Bitcoin, which would hurt revenue in the near term.

Both are somewhat speculative and carry higher risk, so investors will probably want to keep their positions on the smaller side in a diversified portfolio.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Bitcoin. The Motley Fool has a disclosure policy.