Applied Digital’s Shorts Got Squeezed—Now What?

Key Points

• Applied Digital's stock price surge is indicative of its future strength, but short sellers are also driving volatility.
• The company's revenue and earnings outlook are rapidly expanding as AI demand intensifies.
• The stock price is at risk of pulling back sharply in late October and November, closing a gap that formed on the daily charts. 

Investors looking to get into Applied Digital’s NASDAQ: APLD AI outlook should think twice about rushing into this market. 

While the robustly improving outlook for AI-driven demand, revenue, and earnings sparked the 30% October increase in share prices, short interest made the movement so significant. 

The short interest was not only high at over 32% in late September, but MarketBeat’s data also reveals that short sellers had been leaning into their trade, ramping activity and short interest to record highs.

The takeaway is that short-covering is the primary driver of the stock price surge, which sets it up for volatility if not a significant correction. 

Applied Digital Rockets Higher as AI Demand Surges

Applied Digital had a strong quarter in fiscal Q1, with its core business growing by 85% and surpassing the consensus by more than 4,000 basis points. However, the market isn't focused on its core, cryptocurrency-oriented operations, but rather on the emerging AI data center and the hyperscaler demand it is drawing. 

The company announced new contracts and plans for its second AI-centric datacenter, which will not only double its capacity but also include an unnamed client expected to claim 100% of the Polaris Forge 2 capacity. If so, 100% of the planned capacity, including Polaris Forge 1, would be rented, leaving the business with no option but to build more.  

The critical detail is that the business is forecasting an annualized net operating income run rate (NOI) of $500 million per facility, bringing the total forecasted annual income to $1 billion by 2028. Assuming the company continues its expansion into AI data centers, which it is in early talks to do, investors can expect to see plans for additional facilities emerge, potentially increasing the NOI forecast by half a billion each time. 

Analysts Lift Targets: APLD Stock Price Overextends on Short-Covering

The analyst response to Applied Digital’s results and guidance update is favorable, including numerous price target increases and a new high-end range. The bad news is that the 30% stock price surge outran the improvement in sentiment, which caps the market at $41. 

The bulk of the new targets put APLD's market in the high-$30s, where it’s likely to consolidate. The risk is that short sellers will reposition at this higher level, solidifying the price cap. The stock price could become range-bound, at best moving sideways until the subsequent earnings release, unless another catalyst emerges.

The institutions are another risk for this market. The institutions are bullish, owning more than 65% of the stock and buying robustly all year, but the stock price surge presents an opportunity to take profits. Institutional selling will intensify in this scenario, potentially outpacing buying in the near future, creating a headwind for the market that may be insurmountable until it slackens.   

The Technical Outlook: APLD Cross Pivot Point, Wait for It to Confirm Support

The technical action in APLD stock is bullish, with the shares surging 30% to create a large, green candle on the weekly chart. The move broke critical resistance at the previous all-time high, suggesting this market could rise by an amount equal to its prior trading range. That is worth approximately $30, putting APLD stock near the $65 level sometime in 2026. The caveat is that the market advanced well beyond the critical resistance move, which sets it up to pull back significantly before additional highs are reached. The market could pull back to the prior highs near $30 to close the gap on the daily chart.