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Why Applied Digital Stock Soared 16.5% on Friday
Key Points
Micron's blockbuster earnings report helped set off a rally in the AI market.
Applied Digital announced on Thursday that it has secured new funding from a key financing partner.
The company is at risk of overextending itself in its rush to build new data centers.
Shares of Applied Digital (NASDAQ: APLD) jumped on Friday, finishing the day up 16.5%. The gain came as the S&P 500 and the Nasdaq Composite finished up 0.8% and 1.3%, respectively.
The artificial intelligence (AI) data center company announced yesterday that it has secured a new loan facility. The timing could not have been better as Micron's earnings beat on Wednesday renewed confidence in the AI trade.
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Applied Digital secures $100 million
Applied Digital announced on Thursday that it has obtained new financing from Macquarie Group -- a key funding partner. The initial $100 million draw will support "pre-lease development costs for new data center projects." The loan will cover planning, permitting, and initial construction costs associated with campuses it is developing for an unnamed "investment-grade hyperscaler."
The press release came just as investors began rotating back into AI. Renewed fears of a bubble have punished AI stocks since Oracle's disappointing earnings last week. But Micron's release after the bell on Wednesday breathed life back into AI stocks. The memory chipmaker's sales and earnings per share figures came in well above estimates. Company leadership told investors that the AI market can't get enough of its specialized memory.
Image source: Getty Images.
Applied Digital still carries a significant risk
The risks here are still too high for my taste. Applied Digital will keep borrowing at steep rates, issuing more shares -- or, more likely, both. The reality is that those in the AI data center business walk an incredibly fine line. If the AI boom cools off, Applied Digital could easily find itself overleveraged and unable to make good on its obligations.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.