HSEP Weekly Update: 5/19/23
Applied Digital, Noodles & Company, and a brief metal exposure update. It's been a busy week.
We have much to talk about. First, Applied Digital APLD 0.00%↑ - holy heck! After selling out of that position in HSEP at $3.24 on May 4th, I had a buy order fill at $3.05 on May 12th.
The stonk promptly fell all the way down to a closing price of $2.88 - just above an additional APLD buy order at $2.85 that had been open for weeks. That order never filled. On Monday APLD closed at $3.42 and what has transpired since has been absolute euphoria.
Tuesday morning the company issued a press release linking up to $180 million in future revenue with the hot new magic acronym: “AI.”
Applied Digital Corporation, a designer, builder and operator of next-generation digital infrastructure that is designed for High-Performance Computing (“HPC”) applications, today announced that its recently launched AI Cloud Service, through its wholly-owned subsidiary Sai Computing, has secured its first major AI customer with an agreement worth up to $180 million over a 24-month period.
APLD closed at $6.11 on Tuesday, $7.05 on Wednesday, and then pumped all the way to $8.42 yesterday. As of writing, it’s at $8.19 but volume is clearly declining each day - an indication the steam might be running out on this one:
I’ve already gone into detail about my thoughts on this news in a post for Seeking Alpha. Main takeaway:
We're all likely familiar with the idea of following the leader. That kind of thinking is what ultimately pushed me to go long APLD shares back in March given what appeared to be high conviction buying from Wes Cummins. But now it looks like the leader could possibly be preparing to take some profit. It might be wise for you to do the same.
Lost in the euphoric rise of APLD has been that the details of the $180 million are very unclear. We don’t know what the baseline estimate is or what the prepayment looks like. There’s more to consider:
After hours Tuesday, company insiders registered to sell 57% of the outstanding common shares
Wednesday we got an announced $175 million mixed shelf offering
And just this morning, additional news of a $50 million dollar loan to fund the growth
I’ve been selling some shares all the way up and it has been my best trade year to date by far. I want to be clear, I’m still personally long APLD shares in my Roth (not in HSEP). I think there is a very interesting opportunity with this company. I also think this price move is getting way ahead of the reality of the business today and I suspect that price is going to ultimately come back down to earth when the momentum traders chasing the AI narrative move on. Of course, I could certainly be wrong. But that’s my gut feel.
These Noodles Taste Like Crap
Meanwhile, the absolute wreckage that is Noodles & Company NDLS 0.00%↑ is getting worse and that “washout” that I mentioned last week is in progress:
I think the 20% haircut is an overreaction, but I wouldn’t rule out a full share price washout down to the low $3’s.
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