On Friday, Lake Street Capital Markets revised its share price target for Applied Blockchain Inc (NASDAQ:APLD) to $7.00, a significant decrease from the previous $19.00. Despite the reduction, the firm maintains a Buy rating on the stock. The adjustment follows the analyst's assessment that the market is undervaluing the company's potential, particularly in relation to its high-performance computing (HPC) data centers.
Applied Blockchain's current valuation, according to the analyst, reflects only its Bitcoin hosting and AI cloud services, without acknowledging the prospective AI hosting contract.
The company's Bitcoin hosting (300MW) and AI Cloud business (8 clusters) are projected to generate $80 million in EBITDA, which the analyst suggests is worth $4 per share at a 9x EV/EBITDA multiple. The analyst expressed that at present, the market assigns no value to the possibility of Applied's 400MW in HPC data centers.
The firm emphasized the need for Applied Blockchain's management to regain trust and secure a contract for the HPC data centers to realize their potential. The analyst estimates that 400MW could generate $800-$900 million in revenue and $450 million in annual EBITDA, but would require a substantial $3.8 billion capital investment for construction.
Lake Street Capital Markets anticipates that as Applied Blockchain progresses with its growth and financing plans, the market will begin to recognize the value of its HPC business. The analyst predicts that the company's valuation multiple could align with that of its data center peers, which trade at mid-to-high teens EBITDA multiples.
The revised $7 price target is based on two components: $4 per share for the existing business operations and $3 per share for the 100MW of HPC data center capacity that is currently under construction.
InvestingPro Insights
As Applied Blockchain Inc (NASDAQ:APLD) navigates the dynamic landscape of high-performance computing and Bitcoin hosting, recent data from InvestingPro offers a deeper look into the company's financial health and market performance. With a market cap of $375.82 million and a striking revenue growth of 312.24% over the last twelve months as of Q2 2024, APLD is showing signs of aggressive expansion. However, the company's P/E ratio stands at a negative -3.59, reflecting challenges in profitability that are echoed in the InvestingPro Tips. Analysts have expressed concerns about the company's cash burn and have revised their earnings expectations downwards for the upcoming period.
InvestingPro Tips also highlight the stock's volatility and the fact that short-term obligations exceed liquid assets, suggesting potential liquidity risks. Despite these challenges, the company's significant revenue growth and the expansion of its AI cloud services and Bitcoin hosting capabilities are factors that could play into future valuations. Investors should note that analysts do not anticipate the company will be profitable this year, and the stock has experienced a notable decline over the last six months. For those interested in a comprehensive analysis, there are over 10 additional InvestingPro Tips available, which can provide further insights into Applied Blockchain's financials and market prospects.
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