Is the market afraid of AI data center debts❓
So why did the president and CEO of one of the companies at the heart of building this infrastructure invest $6.66 million of their own money on its worst day this month? 💰
Last Friday, Applied Digital stock closed down 11.48%, about 64% below its record close at the end of May... 📉
And on that very same day, its President, Jason Zhang, bought 300,000 shares at an average price of $18.86 (about $5.66 million), and CEO and Chairman, Wes Cummins, bought 55,803 shares at $18.04 (about $1 million). 🛒
But the interesting story is not just who bought, but why the entire sector is being sold off right now. We connected the dots. 🔎
First, who is Applied anyway?
Think of a landlord. But instead of apartments, they build huge buildings full of artificial intelligence servers and lease them to companies that need computing power. 🏢
According to the report published on October 7, Applied has lease agreements for 1.41 gigawatts of computing capacity across five campuses. ⚡️
The tenants?
CoreWeave and an 'investment-grade cloud giant' that the company does not disclose by name. Contract value: approximately $36 billion over the base term, most for 15 years. 🤝
And quarterly revenue? $341.9 million, a 322% increase compared to the previous year!! 📈
So why did the stock plummet❓
A three-step chain of events: 1. They build before the rent comes in. A data center building costs billions, and the tenant only starts paying when it's ready. The gap is financed with debt. 🏗
2. Debt became more expensive. CoreWeave's 2032 bonds, for the tenant of Applied's first campus, approached a 15% yield on October 14, priced at about 79.5 cents on the dollar. A high yield means investors demand more interest to lend, and when this happens to a client, everyone building for them is re-evaluated. 📊
3. And that same week, according to the report, J.P. Morgan downgraded Applied's project bonds from 'overweight' to 'neutral' due to an anticipated wave of new loans. 🏦
It's important to understand, no one is claiming the contracts were canceled. The pressure is on the cost of money, not on demand. 💵
- Smart money - what else do we see in our data:
- Tiger Global opened a new position in Q2: 885,000 shares, worth about $33 million (13F, as of June 30).
- Wells Fargo raised its target to $55 on October 8, after the report. 📈
- And according to our data, 9 out of 11 investment houses that rated the stock in the last 270 days recommend 'buy', and 2 'hold'. ✅
When you put it together, the picture changes: the market is selling off the sector due to the cost of money and a fund that collapsed, and the two people who signed the contracts are buying on the same day. 🔗
The big question is not whether the world needs more data centers, but how much it will cost to finance them. What do you think is worth more in such a market - a 15-year contract, or next month's interest rate? 💭