The “AI Bubble” Debate Isn’t Scaring Serious AI Investors. Here’s the Stock They’re Backing.

• Concerns about a bubble in AI stocks have some investors worried.

• Data centers provide the critical infrastructure needed for AI computing to occur.

• Investors should recognize that unprofitable companies carry a higher degree of risk.

• 10 stocks we like better than Applied Digital ›

Stand around the water cooler with some well-informed investors discussing artificial intelligence (AI) stocks, and you’ll likely hear a variety of opinions regarding the possibility that an AI stock bubble has formed.

However, the savviest of investors remain dauntless in their pursuit of AI exposure, recognizing that the future is bright for the industry. In fact, a recent survey conducted by The Motley Fool found that 59% of respondents believe a downturn in AI stocks is unlikely to significantly adversely affect their finances.

And while there are a variety of stocks that they’re keen on buying, shares of Applied Digital (NASDAQ: APLD), a developer of data centers that cater to AI computing workloads, have been in constant demand.

With investors’ enthusiasm for AI surging recently, Applied Digital stock has benefited considerably. Shares have soared by more than 208% over the past year as of this writing. During the same time, the S&P 500 has logged a much more modest — yet still impressive — 16.9% gain.

Expand the time frame a little more, and the performance of Applied Digital stock is even more impressive. Over the past three years, it has skyrocketed by 1,430%.

While AI chatbots and other AI applications have become increasingly embedded in various aspects of our digital experiences, many users may not recognize just how much processing power these tools require. Their demands are substantial. That’s where Applied Digital comes in. The company develops high-performance computing (HPC) data centers ideally suited for hyperscalers — companies that offer cloud computing solutions optimized for AI software.

In August, for example, Applied Digital finalized a second lease agreement with hyperscaler CoreWeave relating to Applied Digital’s Polaris Forge 1 campus in North Dakota. Following the signing of that agreement, Applied Digital is providing a total of 400 megawatts of data center infrastructure to support CoreWeave’s AI and HPC endeavors. In total, the expected contracted lease revenue amounts to about $11 billion.

Announcing a loan facility with Macquarie Group last month, Applied Digital stated that it is “currently in advanced-stage negotiations with another investment-grade hyperscaler for multiple campuses.”

As AI companies continue to make massive investments in data centers, it’s unsurprising that Applied Digital stock is in such high demand among AI investors.

Trading at 35 times trailing sales, Applied Digital is expensive, but the stock is hardly excessively overvalued considering the high growth expectations for the company. However, it’s essential for potential investors to recognize that the company remains unprofitable. Therefore, those considering opening a position in the stock must be comfortable with more speculative investments.

Before you buy stock in Applied Digital, consider this:

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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The “AI Bubble” Debate Isn’t Scaring Serious AI Investors. Here’s the Stock They’re Backing. was originally published by The Motley Fool