Applied Digital (NASDAQ:APLD) shares surged 16.5% on Friday, recovering from a sharp 17.5% decline just two days prior. The Wednesday plunge stemmed from growing investor concerns over rising debt levels in the artificial intelligence (AI) data center sector, with Applied particularly exposed due to its capital-intensive expansion.
The rebound was primarily fueled by Micron Technology (NASDAQ:MU | MU Price Prediction) reporting stronger-than-expected fiscal first-quarter results Thursday, with guidance signaling robust AI memory demand outstripping supply through 2026. Investors interpreted this as confirmation of healthy AI infrastructure growth and shattering the AI bubble myth.
Ironically, the catalyst for Applied Digital’s rally was its announcement of a development loan facility with Macquarie Group to provide up to $100 million initially to fund pre-lease costs for new AI-optimized data center campuses. The facility supports early-stage planning and construction amid negotiations with a hyperscaler. Investors appeared to overlook the debt worries from just days earlier, focusing instead on the funding as a positive step for growth.
The Debt Load That Worried Investors so Much
Prior to the rebound, investors had grown wary of Applied Digital’s leverage resulting from its aggressive buildout of AI data centers. In its fiscal first quarter, the company reported $687 million in current and long-term debt against just $74 million in cash and equivalents.
In November, a subsidiary issued $2.35 billion in 9.25% senior secured notes due 2030 to finance new facilities and refinance obligations. These moves highlight Applied Digital’s reliance on debt to fund expansion, including campuses like Polaris Forge, which depend on long-term leases — primarily with CoreWeave (NASDAQ:CRWV), another company battered by rising debt levels — to generate revenue.
The sector-wide context extended the market’s concerns because hyperscalers issued $121 billion in bonds in the third quarter for AI infrastructure, more than four times the prior five-year annual average. Peers like IREN (NASDAQ:IREN) and Cipher Mining (NASDAQ:CIFR) faced similar scrutiny over heavy borrowing in a capital-intensive industry.
Applied Digital’s 17% plunge also reflected broader profit-taking after its strong 2025 gains, alongside fears that execution risks — such as delays in power delivery or tenant ramp-ups — could strain cash flows and turn debt into a burden if AI demand slows.
Why Risk Is Rising, Not Falling
The Macquarie facility enables Applied Digital to accelerate development without immediate equity dilution. However, it signals ongoing debt reliance to finance buildouts. APLD’s model requires flawless execution to service obligations, but added borrowing heightens leverage in an environment of elevated interest costs.
While the funding supports growth, it does not lower the company’s risk profile — it expands exposure to potential downturns in AI infrastructure spending.
Key Takeaway
Micron’s earnings confirmed strong AI demand, with inventory sold out and guidance for high gross margins. However, this was largely expected from prior commentary by Nvidia and others on robust hyperscaler spending. Nvidia’s earnings also showed extensive, robust demand for its AI accelerators.
Maybe the market was simply looking for confirmation of the data, but those affirmations have been filtering in all along. The sector’s rally on Micron’s results overlooked the ongoing risks it faces. Many AI stocks, including Applied Digital, carry significant debt loads to fund expansion. If the debt bomb investors fear detonates due to interest rates remaining elevated, delayed monetization, or softer demand, the resulting collapse could hit these leveraged players hard.
Applied Digital’s rally, although welcomed by investors, is not the message they needed to hear. The market may love the data center stock gain, but you should still be skeptical.
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