Why Applied Digital Stock Plummeted Today

Applied Digital (NASDAQ: APLD) stock saw a dramatic valuation pullback in Monday's trading. The data-center specialist's share price ended the daily session down 15.3%. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) fell 0.5% in the session, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) dropped 1.2%.

Applied Digital got hit with big sell-offs today as investors reduced their positions in artificial intelligence (AI) stocks ahead of Nvidia's fourth-quarter earnings release. The company's share price was also under pressure due to reports that Microsoft could be cutting back its spending on data centers.

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Applied Digital stock slumps amid concerns about Nvidia and Microsoft

Nvidia is gearing up to release its fourth-quarter earnings report after market close on Wednesday, and investors are making some big moves ahead of the market-shaping release. More than any other stock, Nvidia is central to bullish momentum in the tech sector right now -- but traders are reducing their holdings in the stock ahead of the release.

In addition to concerns about potential volatility in the wake of the report, Applied Digital stock saw a big pullback today in conjunction with comments from Microsoft CEO Satya Nadella and reports of cutbacks on data center spending. Nadella recently raised some concerns on a podcast about the level of value AI has actually generated compared to the hype surrounding it. Reports subsequently emerged that Microsoft was cutting back on some of its data center build-out plans.

What's next for Applied Digital?

Applied Digital's share price looks poised for big movement this week. Nvidia's sales, earnings, and guidance will be under the microscope, and the report will likely spur significant valuation moves for the smaller data center specialist's stock.

Following news that Microsoft may be cutting back on data center spending, Nvidia's guidance for the current quarter could have a particularly strong impact on Applied Digital stock. Shares could soar if the AI hardware leader's guidance turns out to be better than expected, but there's also big downside risk if the outlook misses Wall Street's forecast.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.