Key Takeaways
- Applied Digital’s stock has returned 272% over the past year, but carries a huge amount of debt and is not yet profitable.
- Palo Alto Networks is a more established AI stock with a strong track record of growth and a lower valuation.
- Palo Alto Networks has a diverse range of cybersecurity products and services, including AI-powered solutions.
- The company has made strategic acquisitions to bolster its AI security efforts and is preparing for the quantum computing revolution.
- Wall Street analysts are bullish on Palo Alto Networks, with a median price target of $230 per share, suggesting a 27% return over the next 12 months.
Introduction to Applied Digital
Applied Digital has been gaining significant attention in the market, with its stock returning an impressive 272% over the past year and already up 42% year to date. The company’s focus on developing artificial intelligence (AI) data centers has been a major driver of its growth. However, despite its promising prospects, Applied Digital carries a huge amount of debt, which is a significant concern. Additionally, the company is not yet profitable, which raises questions about its long-term sustainability. Furthermore, its future growth depends on building new data centers and filling them with clients in an increasingly competitive market. The company’s concentrated client base, made up of a few large hyperscalers, also poses a risk, as any changes to these relationships could have a significant impact on the company’s revenue.
A More Established AI Stock: Palo Alto Networks
Palo Alto Networks, on the other hand, is a more established player in the AI space, with a strong track record of growth and a lower valuation. The company is the largest enterprise cybersecurity provider, offering a range of cybersecurity protections to large organizations. Palo Alto Networks has a diverse range of products and services, including AI-powered solutions, and has made strategic acquisitions to bolster its AI security efforts. The company’s next-gen security annual recurring revenue (ARR) grew 29% last quarter, driven by its focus on innovation and investment in AI applications, including data centers. This growth is expected to continue, with the company anticipating $15 billion to $20 billion in ARR for fiscal year 2030, up from the current $5.9 billion.
Palo Alto Networks’ Strategic Acquisitions
Palo Alto Networks’ acquisitions of CyberArk and Chronosphere are expected to lead to a spike in revenue, driven by the AI revolution. CyberArk will help with identity security, while Chronosphere will bolster the firm’s AI security efforts. These acquisitions, fueled by the AI revolution, are expected to drive long-term growth for the company. Additionally, Palo Alto Networks is preparing for the quantum computing revolution, partnering with IBM on a Quantum-Safe Readiness solution for enterprises. This partnership will help enterprises prepare for the arrival of quantum computing, which is expected to be commercialized by 2029. As Nikesh Arora, chairman and CEO of Palo Alto Networks, noted, "We’re getting more and more optimistic on the arrival of quantum and expect it to be commercialized by 2029. As is widely known, quantum computing has the ability to break current encryption across technology stacks. Enterprises have less than five years to get their estates to quantum readiness."
Wall Street’s Bullish Outlook
Despite a sell-off in the fall, driven by concerns about high stock valuations and AI investment, Wall Street analysts are bullish on Palo Alto Networks. The stock is rated a buy by 80% of analysts, with a median price target of $230 per share, suggesting a 27% return over the next 12 months. The company’s remaining performance obligations (RPO) grew 24% last quarter to $15.5 billion, and its revenue growth is expected to be 14% for fiscal 2026, with adjusted earnings per share growth expected to be 13%. While these growth rates are slightly slower than previous years, they are still impressive and demonstrate the company’s long-term potential.
Conclusion
In conclusion, while Applied Digital has shown impressive growth, its huge debt and lack of profitability raise concerns about its long-term sustainability. Palo Alto Networks, on the other hand, offers a more established and diversified range of cybersecurity products and services, with a strong track record of growth and a lower valuation. The company’s strategic acquisitions and partnerships, including its partnership with IBM, position it well for long-term growth and success in the AI and quantum computing spaces. With Wall Street analysts bullish on the stock, Palo Alto Networks is an attractive option for investors looking for a reliable and established AI stock.
