Prediction: This Artificial Intelligence (AI) Stock That Has Jumped by Over 5x in a Year Can Still Soar by 66% or More

Key Points

Applied Digital's lease revenue pipeline is likely to improve thanks to robust demand for AI data center infrastructure.

Analysts are forecasting a significant acceleration in the company's growth over the next couple of years.

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An investment of $1,000 in shares of Applied Digital (NASDAQ: APLD) made a year ago now would be worth more than $5,500. The stock's phenomenal surge during this period can be justified by the company's impressive revenue pipeline, which points toward a significant acceleration in its growth over the long run.

Applied Digital stock, however, has been under pressure this year. It is down by 27% from the 52-week high it reached on Jan. 28. Moreover, the company's latest results failed to boost investor confidence, even though it crushed Wall Street's targets. But this artificial intelligence (AI) stock appears to be ticking back upward, and it may be only a matter of time before it fully regains its mojo and flies higher.

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Let's see why it may be a good idea to invest in Applied Digital stock following its recent pullback.

Applied Digital's red-hot growth is sustainable

Applied Digital is emerging as an important player in the AI infrastructure ecosystem in the U.S. The company designs and develops dedicated AI data centers for hyperscalers and neocloud companies such as CoreWeave (NASDAQ: CRWV). It makes money by developing custom data centers for its clients, but the bigger opportunity for the company is in operating those data centers.

It owns the infrastructure, charges its tenants for the custom data center build (generating fit-out revenue), and generates rental revenue under long-term leases by charging for the power, infrastructure, and space that it provides to them.

Applied Digital is currently in the build-out phase. It started operations at its first 100-megawatt (MW) data center at the Polaris Forge 1 complex in North Dakota in the second quarter of its fiscal 2026. CoreWeave is the tenant utilizing this facility. Applied Digital estimates that it will start operating 250 MW of data centers in the coming year, which should significantly enhance the company's top-line growth.

The good part is that Applied Digital has already been growing nicely, even though a significant chunk of its lease revenue has yet to materialize. In its fiscal 2026 third quarter (which ended on Feb. 28), its revenue increased by 139% year over year to $126.6 million. Even better, it swung to a non-GAAP (adjusted) profit of $0.09 per share from a loss of $0.01 per share in the year-ago period.

Applied Digital's top- and bottom-line numbers came in significantly above Wall Street's expectations. The company should be able to sustain its market-beating performance, as it has $16 billion in contracted lease revenue from CoreWeave and another hyperscaler for 15 years. So, the company's annual revenue run rate could easily exceed $1 billion once it completes the 600 MW of data centers it is building for these two customers.

Even better, Applied Digital is working to capitalize on the huge appetite for AI data center computing capacity, which is encouraging hyperscalers and neocloud providers to invest aggressively. The company began construction of a 300 MW AI factory campus in fiscal Q3 and expects operations to begin at this site by the middle of 2027.

Don't be surprised if Applied Digital lands a lucrative long-term lease contract for this site as well, especially considering that its key tenant has just signed one of its own. CoreWeave recently entered into a $21 billion contract to provide AI computing capacity to Meta Platforms. This was followed by another deal with Anthropic, which will use CoreWeave's infrastructure to run its Claude family of AI models.

So, CoreWeave is likely to tap Applied Digital to build additional data center capacity, which should boost its lease revenue pipeline. This explains the significant bump in analysts' forecasts for the company's revenues.

The stock could deliver phenomenal gains over the next three years

The chart above shows that Applied Digital's revenue is expected to more than triple between 2026 and 2028. That seems achievable considering that it is on track to add new capacity at a third data center campus.

As a result, don't be surprised to see Applied Digital stock maintaining its premium sales multiple. It currently trades at 21 times sales. That may seem expensive at first glance, but Applied Digital's triple-digit percentage revenue growth, along with its impressive lease revenue pipeline and new projects, justifies that premium valuation.

But even if it trades at half of its current sales multiple after three years, its market cap could jump to $14.2 billion (based on the $1.42 billion revenue estimate for 2028). That's 66% higher than its current market cap, which is why it would be a good idea to buy this tech stock before it steps on the gas.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.