Applied Digital shares soar after a deal with one of Nvidia's major partners

Applied Digital, which builds data centers, soared 48% at the close of trading yesterday, June 2, and added about another 8% in premarket trading today, as of this writing. The company announced a major $7 billion deal with cloud-computing startup CoreWeave. It is a key partner of global AI chip market leader Nvidia, which owns shares in both companies. 

Shares of Applied Digital rose 48.5% to $10.14 per share yesterday. The closing price marked the highest since February 21. In premarket trading today, the stock has continued to rise, up 8% at almost $11.00 per share.

CoreWeave rose 8% to $120.20 per share yesterday. That was the highest closing price since its IPO in late March. Shares have added another 1.2% before the bell today.

On Monday, Applied Digital announced a deal to provide 250 megawatts of capacity to power CoreWeave's AI and high-performance computing operations with Applied Digital's data center infrastructure in North Dakota.

Over 15 years, Applied Digital expects to generate about $7 billion in revenue from the deal. The price is set up front, but there are provisions for annual increases regardless of actual project costs, according to an investor presentation cited by CNBC. 

Both companies are owned in part by Nvidia.  As of March 31 (the most current data available), Nvidia owned approximately 7.7 million shares of Applied Digital, worth about $43.4 million, and 24.2 million shares of CoreWeave, worth $896.7 million.

The deal is a huge win for Applied Digital, which is in the process of transforming itself into a data center REIT, writes Business Insider. Reuters calls the deal a «major lifeline for Applied Digital,» which, it notes, «has been facing challenges in the data center hosting sector.»

The data center space to be leased by CoreWeave is located at the campus Applied Digital is building in Ellendale, North Dakota, which it claims is one of the biggest in the world. The project requires massive investment: In September, for example, Applied Digital raised $160 million from a group of investors that included Nvidia. In January, it announced that funds managed by Macquarie Asset Management would invest up to $900 million specifically in the data center project. A month later, it announced a financing of $375 million from Japan's Sumitomo Mitsui Banking Corporation. 

The deal with CoreWeave strengthens Applied Digital's position as a new provider of infrastructure critical to next-generation AI and high-performance computing. Demand for AI is accelerating exponentially, Applied Digital CEO Wes Cummins was quoted as saying in the press release. Data centers are in extremely high demand among hyperscalers, such as Meta and Microsoft, Business Insider noted.

Shares of Applied Digital have risen nearly 95% in the last month and about 140% in the last 12 months. The stock has been rated by eight analysts, who all have «buy» calls on it, according to MarketWatch. Their average target price is $10.94 per share, which implies an 8% upside relative to the last closing price.

Just in late May, an analyst at investment bank Citizens JMP rated Applied Digital «market outperform» with a target price of $12 per share.

CoreWeave shares have gained 121% over the last month. The name has 19 coverage analyst ratings, with «hold» being the most common (10), according to data from MarketWatch. Seven analysts have «buys,» and two «sells» (an «underweight» and a «sell»). In late May, CoreWeave received its first downgrade since its IPO: Barclays changed its recommendation from «overweight» to «equal weight» and lowered its target price from $100 to $70 per share.

Applied Digital Corporation designs, develops, and manages next-generation digital infrastructure, with a focus on data centers. The company built data centers initially for bitcoin mining before shifting its specialization to AI in November 2022. 

CoreWeave was founded in 2017 in New Jersey. Originally known as Atlantic Crypto, it operated as an ethereum miner. In 2019, it rebranded as CoreWeave, utilizing its large stock of GPUs to begin offering cloud computing infrastructure.