Is Applied Digital The #1 Neocloud Stock to Buy?

Watch Our Recent Segment on Investing in Neocloud Stocks

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In a recent AI Investor podcast episode, hosts Austin and 24/7 Wall St. Analyst Eric Bleeker analyzed investment opportunities in the rapidly evolving neocloud space.

“Neoclouds” are a new breed of cloud computing companies designed specifically for AI infrastructure. Bleeker pointed to companies like CoreWeave, which has seen a remarkable 167% increase since its IPO, and Applied Digital (Nasdaq: APLD), which recently announced a significant lease agreement with CoreWeave.

Bleeker noted that while many of these smaller companies may not survive, the current market dynamics present unique opportunities for growth, especially as larger providers face supply constraints. The discussion underscored the speculative nature of these investments but also the potential for substantial returns in the coming years.

Get More AI Stock Ideas

If you’re on the hunt for more AI stock ideas, check out the latest episode of 24/7 Wall St.’s AI Investor Podcast. 

Each week, we break down the biggest news in the AI space and invest $500,000 in our favorite AI ideas. The best part? You can subscribe and follow along with what we expect to be the biggest trend in technology history for free. You can listen to the latest episode (where we discuss neocloud investing opportunities) in either Spotify or Apple Podcast below. 

Transcript

Austin Smith (Host): We’ve talked a lot about the current portfolio, and I’m sure our listeners appreciate that, but what they appreciate even more is knowing where we’re going next and what other investments we’re looking at.

You mentioned freeing up $50,000 of cash from the Amazon position for our next great AI investment, Yolo. What are some of the key themes you are looking at? I want to quickly rattle off some of the other themes we’ve discussed in prior episodes: healthcare, robotics, and agentic AI. Privately, you and I have discussed AI in defense. The universe of AI applications and potential promising investments is vast. Which sub-sectors in that space are most appealing to you right now?

Eric Bleeker (Analyst): We’ve been discussing how frothy the market feels. At this peak, I thought it would be interesting to unveil the hunt for the next Yolo. Currently, stocks are experiencing a risk sell-off, with the NASDAQ down about 2%. I wanted to share some themes I’ve been exploring and some smaller plays. I’m not sure if these will make it into the portfolio, but they are speculative positions I’m considering in the coming weeks.

If we buy more speculative positions, we’ll keep them to a very low amount. If we find companies that are more solid and have the right risk profile, we’ll add them to the portfolio. The first theme is neoclouds. Earlier, I mentioned Amazon’s 44% market share versus its 20% of GPUs.

Who is filling that gap? It’s a new breed of cloud computing companies called neoclouds. These companies start from the ground up with infrastructure built for AI.

A prime example is CoreWeave, which is up 167% since its IPO. There’s also interest in other stocks in this space, such as Nebius, which is up 71%.

The narrative around these companies has shifted, and I believe we are seeing an opportunity for companies that were left out of the first wave of cloud computing to enter the market. We’ve seen Oracle rising recently after entering the cloud business late.

Most of these companies may not survive, but some will find their niche. One company I covered this week is Applied Digital, ticker symbol APLD.

They are about a $2 billion company and have been moving a lot this week. They announced a 15-year lease agreement with CoreWeave, projected to deliver $11 billion over its term.

They are breaking ground on two new campuses by the end of the year. This space is interesting because as larger hyperscalers face supply constraints, it creates opportunities for smaller companies with GPU capacity to show strong growth rates in the coming years.

I can’t predict what this space will look like in five years, but the dynamics are attractive for the next year or two. I can see why people are investing. I’m not sure if I will add any stocks to the portfolio from here, as it remains small and speculative, but I wanted to share some ideas.