Applied Digital Skyrockets Following Deal with CoreWeave

Shares of Applied Digital (APLD) skyrocketed 103% last week, rising from $6.83 from the previous Friday, to close at $13.86 last Friday. The intraday peak reached $15.42 and represented a 126% gain.

The rally was a result of a major contract award between the company and CoreWeave (CRWV), a recent IPO (initial public offering). Applied Digital is a digital infrastructure company that specializes in high-performance computing data centers for artificial intelligence (AI) workloads. CoreWeave is a specialized cloud service provider that focuses on AI tasks.

The newly inked deal is worth $7 billion over 15 years for Applied Digital as they will lease 250 megawatts of power capacity to CoreWeave. This will provide Applied Digital a stable and more predictable earnings outlook versus past revenues.

The beauty of the deal is that it also gives CoreWeave an option to use an additional 150 megawatts of power, if needed. This could provide even more revenue for Applied Digital in the future with a solid partnership in the AI sector.

There was some unusual options activity that we picked up on in the Applied Digital’s options market on the June 2nd breakout back above the 200-day moving average. The stock closed at $10.14 with the weekly APLD June 12 calls closing at 25 cents. Volume for the session saw 11,105 contracts traded versus open interest of just 19 contracts. A call option gives an investor the right to buy a stock at a set price by a certain date.

The aforementioned call options expired THAT Friday, June 6th, and opened at the same price the following session on June 3rd. On last Friday’s close, the calls were $1.85 in-the-money and represented a 640% return. They traded as high as $3.45 when the stock cleared $15 which represented a return of 1,280%!

The surge in the stock can also be attributed to a couple of other major factors, aside from the size of the revenue deal. Short-interest over 36% and a technical breakout above three-year resistance at $11 also fueled the explosive rally.

If a heavily-shorted company were to perform better-than-expected, a minor share price rise can sometimes turn into a sharp upward spike which is the phenomenon known as a short squeeze. The technical breakout shown in the chart below was very bullish and could lead to higher highs over the next 6-12 months. A run to the low to mid $20’s at some point this year could come on more deal signings and short covering.

There was also some unusual options activity in the APLD August 26 calls following last Friday’s June 6th close at $1.27. Volume of 2,391 exchanged hands versus open interest of 23. This is suggesting traders are expecting a run past $27 and possibly up to $30 by August 15th and when the APLD August 26 calls expire.