The stock has the makings of a monster winner. Assuming it continues to see growing adoption across multiple markets and turns a profit in the next year or so, investors could earn tremendous returns in the coming years.

Nvidia is seeing explosive demand for its GPUs, particularly from data centers. Applied Digital is a relatively small business that benefits from this opportunity. It has a market cap of just $1.8 billion at the time of writing, and the stock is up 112% over the last year.

Applied Digital builds data centers for AI, cloud services, and cryptocurrency mining. Revenue grew 67% year over year last quarter, and interest from large customers for 2025 and 2026 is starting to ramp up significantly.

As a smaller business, Applied Digital has limited resources. The business reported an adjusted net loss of $4 million last quarter, but that’s where Nvidia’s recent investment is pivotal for Applied Digital’s growth prospects. The investment by Nvidia and other accredited investors helped strengthen the company’s finances, which will ultimately fuel investments in high-return projects to drive more growth. The benefit for Nvidia is that it is contributing to the growth of more data centers, which ultimately means more sales for its GPUs.

Applied Digital aims to be a leader in operating multiple high-performance data centers. In its recent earnings report, it noted it was finalizing a lease agreement with a U.S.-based customer for a state-of-the-art, 369,000-square-foot facility that can handle AI workloads.

The cloud service business is also showing great potential. It generated nearly half the company’s revenue last quarter. The cloud business helps companies access the computing power they need for AI applications, and it continues to see new opportunities to grow this business.

The company reported a profit of $20 million on an adjusted EBITDA basis in the quarter, and the stock is currently trading at an enterprise value-to-EBITDA ratio of 21 based on the current fiscal year’s consensus EBITDA estimate on Wall Street. It’s a reasonable valuation for a fast-growing technology company. Assuming Applied Digital continues to show improving profitability, the stock could deliver excellent returns in the coming years.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $378,269!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,369!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $476,653!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 18, 2024

John Ballard has positions in Nvidia and SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

Nvidia Has $71 Million Invested in These Smaller-Cap AI Stocks was originally published by The Motley Fool