Wells Fargo Values Applied Digital's Signed Leases Above Its Share Price

Wells Fargo started coverage of Applied Digital Corporation (NASDAQ: APLD) on September 17 with an Overweight rating and a $50 price target, and analyst Eric Luebchow named the stock a Top Idea. The shares rose after the note and have stayed above their pre-call level since.

The call rests on leases already signed, not on demand Wells Fargo expects to materialize. Applied Digital builds and leases data centres to AI companies and now has roughly 1.4 gigawatts under contract. The bank puts the base-term value of those leases at about $36 billion, and says renewals could take that beyond $86 billion across three decades. More than 70% of the contracted megawatts sit directly with Meta and Oracle.

The contracted book alone is worth more than the share price

Wells Fargo's central claim is a valuation one. Luebchow values the existing contracted leases at roughly $30 a share on a net present value basis. The stock closed at $24.39 the day before the call. On the analyst's own maths, the signed leases exceed the pre-call share price, which values the unbuilt pipeline at close to nothing. The gap between that $30 and the $50 target represents the capacity not yet under contract.

The leases themselves explain the confidence. These are take-or-pay agreements, meaning tenants pay whether or not they use the capacity. Wells Fargo describes the backlog as investment-grade concentrated, so the counterparties are large and creditworthy. A start-up tenant can go bankrupt and stop paying; an investment-grade tenant is far less likely to.

Power is the other advantage. AI data centres need utility allocations and grid connections, and those take years to secure. Wells Fargo argues that grid access, not capital, is the scarce input, and that Applied Digital secured its allocations early. The bank describes the company's footprint as power-advantaged, carrying less regulatory risk than rivals building in contested markets.

Contracted is not built, and the tenants are few

None of the backlog pays until it is built, and the building is funded with other people's money. Applied Digital has a facility of up to $5 billion in preferred equity from Macquarie Asset Management, drawn in tranches. Preferred equity sits ahead of common shareholders in the capital stack. A take-or-pay lease also fixes the revenue while leaving cost overruns with the developer. A delayed campus still owes money on its financing while earning nothing.

Tenant concentration is the second issue. A backlog resting on Meta, Oracle and CoreWeave is only as strong as those three. The CoreWeave lease is the weakest link, though Wells Fargo notes it carries Meta credit support inside a highly rated vehicle. CoreWeave is funding its own expansion with debt and has commitments to several landlords at once, so a tenant that over-commits renegotiates with all of them together.

The bull case, in short, is already under contract. The bear case is that Applied Digital must convert 1.4 gigawatts of take-or-pay paper into operating campuses, on time and on budget, while leaning on a funding structure and a tenant roster that leave little room for error.