Is Applied Digital Corporation (apld) The Best Information Technology Services Stock To Buy Right Now?

We recently published a list of 10 Best Information Technology Services Stocks to Buy Right Now. In this article, we are going to take a look at where Applied Digital Corporation (NASDAQ:APLD) stands against the other information technology services stocks.

The U.S. is the powerhouse when it comes to technology and information technology services. The U.S. is well-placed to continue to dominate the technology space, as per AXA Investment Managers. The AI boom led the market rally in 2024, with the broader market soaring over 25% last year. Whereas, the NASDAQ-100 Technology Sector experienced a similar surge of just over 25% in 2024. Over the past five years, the index has returned more than 133% as tech companies continue to dominate the broader market.

ALSO READ: 10 Best Very Cheap Stocks To Buy Right Now

AXA Investment Managers mentioned that the guidance from tech companies amid the new products and services indicates earnings growth will remain healthy moving forward. According to the report from Research and Markets, the United States Information Technology Services market is estimated to be valued at $461.03 billion as of 2024 and is projected to reach $630.76 billion by 2029, growing at a CAGR of 6.47% between 2024 and 2029.

Analysts are revising price targets on IT service companies that are involved in government contracts. The Trump administration’s latest policies pose a threat to companies that are offering IT related services to various government departments. The Department of Government Efficiency (DOGE), which Elon Musk leads, has conducted a campaign to radically downsize the federal government and discontinue numerous agency employees. Musk’s actions are not received well by industry executives. DOGE recently ordered the dismantling of the U.S. Agency for International Development (USAID), raising concerns about the control of massive databases with sensitive information by DOGE. The department is also pushing for authorized access to IRS data systems right in the middle of the tax filing season. Musk-led department is also expected to target the Pentagon soon, pledging cost cuts.

Despite these short-term risks and department scrutiny, the U.S. tech sector is set to grow with the advancement of AI and its increasing daily use cases. Analysts identify several IT services stocks with massive upside potential.

Our Methodology

We used the Finviz screener to compile a list of Information Technology Services stocks with an analyst upside of more than 20% as of February 17. We have also added the hedge fund sentiment around the stocks, as of Q3 2024. The stocks are sorted in ascending order of their hedge fund sentiment.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Applied Digital Corporation (NASDAQ:APLD)

Analyst Upside: 31.72%

No. of Hedge Fund Holders: 26

Applied Digital Corporation (NASDAQ:APLD) offers digital infrastructure, cloud services, and high-performance computing solutions for AI, machine learning, and crypto mining across North America. Originally a crypto miner, the company quit its mining operations in March 2022 and transitioned to providing digital infrastructure solutions and cloud services to the fast-growing sectors of High-Performance Computing (HPC) and AI.

Applied Digital Corporation (NASDAQ:APLD) has demonstrated strong performance across its Data Center Hosting (DCH) business, which generated over 85% of the company’s revenue in FY2024. APLD’s Cloud Services (CS) business, which offers high-performance computing power for AI and ML applications, accounted for 17% of total revenue. The company has diversified its revenue base, with its CS revenue growing over 523% year-on-year as of Q2 FY 2025.

On February 4, Northland Securities analyst Michael Grondahl increased the price target on APLD shares from $12 to $20, maintaining a Buy rating on the stock. The company has secured $375 million in financing through its HPC subsidiary, APLD HPC Holdings LLC, with SMBC. This will allow the company to pay off its Macquarie Capital senior secured note while investing the remaining capital to develop two data center buildings at the Ellendale HPC Campus. CFO Saidal Mohmand noted that Applied Digital Corporation plans to replace the SMBC loan with permanent project financing once a hyperscale lease is secured.

Overall, APLD ranks 7th on our list of best information technology services stocks to buy right now. While we acknowledge the potential of APLD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than APLD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.