APLD: An Embarrassing and Predictable Stock Promotion

Applied Digital, Inc (APLD), a potato farm turned failed bitcoin miner, pumped up its stock in May by claiming to pivot from a floundering business hosting bitcoin miners, to becoming a low-cost AI Cloud service provider. The explosion of interest in AI after the emergence of Chat GPT has predictably attracted the worst promoters and scumbags to peddle fake AI wares to credulous investors, and our analysis indicates that APLD is one of these grifters because it is not an AI company

One clue that this is a stock promotion is the heavy involvement of our favorite bottom feeding investment bank, B. Riley, whose insiders (including Wes Cummins who simultaneously serves as the President of B. Riley Asset Management and the CEO of APLD) own 48.4% of APLD. These B. Riley insiders, coincidentally registered 95% of their shares for sale the same day APLD’s stock rose 320% due to a press release announcing that a mystery customer had signed a deal potentially worth up to $180 million. We expect the B. Riley insiders to exit their position with perfect timing, potentially en masse before as it becomes evident that the claims of APLD, which has failed at nearly every business it has tried, make no sense:

- Our research indicates that APLD’s biggest prospective AI customer is Stability AI, who we think is one of the most dubious AI start-ups in a field awash with speculative promotions. An in-depth article by Forbes insinuated that the founder of Stability AI is a liar who exaggerated his academic credentials and mislead investors. Stability AI is reportedly burning through cash and is losing executives. These two companies make quite the pair, as we think Stability AI is pretending it can continue to afford an AI Cloud service, and we believe APLD is pretending it has one.

- APLD’s CEO boldly announced in April that the company was ordering over 7,000 A100 GPUs (last year’s model) for its AI Cloud service. By June APLD claimed to have ordered 26,000 GPUs, except the CEO went on twitter and bragged to his 154 followers that these were going be the top-tier H100 GPUs, which are selling for $40,000 apiece. Our research indicates that a purchase this size would allow them to jump to the top of the pile in high performance computing, alongside Google, Meta and AWS. We estimate the total price tag to purchase the equipment would be over $1 billion more than APLD’s market cap.

- APLD has just eight subdomains. We spoke with an expert who said, “there is no fucking way you can run a digital cloud platform on eight subdomains.” Technology companies, especially cloud providers, typically use many subdomains to help direct web-traffic, manage security, and provide redundancies. A private datacenter in Saskatchewan called Blacksun, that has 20 employees and is much smaller than APLD, has 235 subdomains. CoreWeave is a data center cloud provider that, like APLD, has three datacenters in the U.S. has nearly 2,000 subdomains.

- APLD’s subsidiary, Sai Computing, which is the entity that supposedly struck deals with two AI customers, only has one subdomain. Even more embarrassingly, its website only has two pages, and can only capture emails.

- APLD’s current power capacity is contracted out to bitcoin miners, so it does not even have the physical infrastructure to host 26,000 GPUs. APLD’s assertion that it has 200MW of high-power computing space in the pipeline is extremely misleading considering that APLD has not even named a site to start building.

- The board is highly conflicted and, in our opinion, incompetent. Bryant Riley owns over 2 million shares of APLD, and his underlings include Wes Cummins the CEO; Chuck Hastings, an “independent” director who also serves as the CEO of B. Riley Wealth Management; and Andy Moore, the CEO of B. Riley Securities, whose wife, Virginia Moore, also serves on the board as an “independent” director.

- B. Riley’s transparently self-serving rating on APLD is a BUY with an $18 price target, which would increase the wealth of the B. Riley insiders holding the stock by ~$400 million. Yet the insiders have filed a shelf registration to sell 95% of their shares, and Bryant Riley’s underlings on APLD’s board have launched a $125 million at the market equity offering (ATM), in part to repay the company’s $36.5 million loan from B. Riley.

- The fact that the board has essentially remained unchanged, despite the fact that APLD has switched its business model every few months since it remerged in 2021, indicates that the board lacks competence. One of the board members seems to have no pertinent experience in datacenters or bitcoin mining whatsoever, having primarily spent her time dedicated to early childhood education.

The board’s incompetence was only highlighted when the CEO was caught in an embarrassing sex scandal, where the board appears to not have hired outside counsel to investigate, but used its Audit Committee instead. APLD’s Audit Committee, which is comprised of two old white men and one of the CEO’s fellow executives at B. Riley, decided the accusations were “unfounded” because the relationship with a balloon-display entrepreneur turned CMO had been “consensual.”