Applied Blockchain stock rating cut to neutral at Compass Point

On Monday, Compass Point downgraded Applied Blockchain Inc (NASDAQ:APLD) from Buy to Neutral, adjusting the price target to $13.00. According to InvestingPro data, the stock has shown significant volatility, with a current ratio of 0.44 indicating that short-term obligations exceed liquid assets - a factor that may have influenced the analyst’s decision. The move followed a significant deal that Applied Blockchain secured last week with CoreWeave, which agreed to 250MW leases for two buildings in Ellendale, ND. The 15-year lease agreement, with options to extend for three additional 5-year periods, is expected to generate approximately $7 billion in revenue, with margins ranging between 89-91%, and an anticipated net operating income (NOI) yield on cost of roughly 13-14%. InvestingPro analysis reveals the company’s current gross profit margin stands at 74.28%, suggesting potential for margin expansion with this new deal. Get access to 15+ additional ProTips and comprehensive financial metrics with InvestingPro.

The agreement also included approximately 13 million warrants to CoreWeave, which have reportedly yielded strong returns. Compass Point acknowledges the deal as a positive outcome for Applied Blockchain, citing the high revenue potential and attractive margins.

However, the firm also highlighted several risks associated with the agreement. Applied Blockchain is obligated to commence service for a 100MW data center in the second half of 2025 and a 150MW center in the first half of 2026. Additionally, CoreWeave has the option to opt-out, and there are concerns regarding project financing and the role of Macquarie in terms of equity involvement and the possibility of facing less leverage with higher interest costs.

Despite viewing CoreWeave as a promising long-term customer with potential for further expansion, Compass Point expressed caution due to the current valuation of Applied Blockchain’s stock. The firm anticipates a more favorable entry point for investors might emerge following potential equity dilution needed to fund the remaining capital expenditures.

The revised price target of $13.00 is based on Compass Point’s long-term 2030 takeout assumptions for Applied Blockchain’s full 400MW post-NOI stabilization expected in 2027, which has been discounted to present value. The downgrade to Neutral reflects a more conservative stance as the market awaits the company’s next steps in executing its growth strategy and managing the associated risks. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value. For deeper insights into Applied Blockchain’s valuation and growth prospects, including detailed financial health scores and expert analysis, explore the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Nvidia (NASDAQ:NVDA)’s new Blackwell chips have demonstrated significant advancements in training large AI systems, as per data from MLCommons. The chips completed a training test in 27 minutes using 2,496 units, showcasing over twice the speed of their predecessors. CoreWeave, in collaboration with Nvidia and IBM (NYSE:IBM), set a new machine learning performance benchmark with their MLPerf Training v5.0 submission, utilizing the Nvidia Blackwell GPUs. This achievement highlights CoreWeave’s capabilities in AI infrastructure, as they completed the training run in just over 27 minutes, reinforcing their position in the AI space.

Additionally, CoreWeave announced the appointment of Ernie Rogers as Chief Architect of Strategic Financing, aiming to bolster their growth and operational capabilities. Barclays (LON:BARC) analysts maintained an Equalweight rating on CoreWeave following a 250MW power deal with Applied Digital, which increases CoreWeave’s contracted power to nearly 2GW. This power deal is expected to support new AI workloads on CoreWeave’s platform, reflecting ongoing demand for high-performance computing resources.

Applied Digital entered into two approximately 15-year lease agreements with CoreWeave for its AI data center in North Dakota, expected to generate around $7 billion in revenue. The leases will provide CoreWeave with 250MW of critical IT load, with potential expansion options. These developments indicate CoreWeave’s strategic efforts to enhance its infrastructure and meet the growing demand for AI and HPC applications.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.