Why Applied Digital Stock Is Plummeting Today

Applied Digital (NASDAQ: APLD) stock is getting hit with another sell-off in Tuesday's trading. The data center company's share price was down 10.8% as of 3 p.m. ET after having been off by as much as 18% earlier in the session.

The stock was slumping as traders generally sold out of growth-dependent artificial intelligence (AI) stocks Tuesday. Market participants are focusing on emerging macroeconomic risk factors, and bullish sentiment toward AI plays is weakening ahead of Nvidia's fourth-quarter report, which is due out after the market close on Wednesday.

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The AI trade loses momentum

The Trump administration's plan to impose new tariffs on Canada and Mexico is adding to investors' existing concerns about resurgent inflation. Tech sector investors are also concerned about the impact of Trump's plans to introduce new restrictions that would further curtail the export of advanced semiconductors and manufacturing equipment to China.

Investors are also adjusting their portfolios in anticipation of Nvidia's latest results and guidance. In addition to being a bellwether for the data center market and AI demand, Nvidia is also one of Applied Digital's most high-profile investors -- so Wednesday's earnings release could be significant for it on multiple levels.

What comes next for Applied Digital?

With Tuesday's pullback, Applied Digital stock is now down by more than 10% over the last month. Its market capitalization of roughly $1.8 billion gives it a valuation of approximately 7 times this year's expected sales. With year-over-year sales growth of 51% last quarter, Applied Digital has shown that it deserves some degree of valuation premium.

On the other hand, the stock is still up by 99% over the last year -- and charting the growth course of the data center market involves a substantial amount of speculation. Notably, a recent report that Microsoft may be moderating its data center expansion strategy has some investors worried that Nvidia will report softer-than-expected guidance for the first quarter. For better or worse, Nvidia's fast-approaching report looks poised to be a significant valuation catalyst for Applied Digital.

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.