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Investing in small-cap stocks can lead to significant capital gains. These companies are often in the early stages of growth, giving them plenty of room to expand and increase their market value. However, with higher growth potential comes increased risk. Small-cap stocks are known for their volatility, meaning prices can swing dramatically, leading to significant losses.

Thus, focusing on fundamentally strong stocks with “Strong Buy” ratings from analysts can be an effective strategy for selecting high-quality small-cap stocks with solid growth potential.

To identify promising small-cap stocks, I used Barchart’s Stock Screener Tool, which helps filter stocks based on key metrics. After running the scan, Applied Digital (APLD) stood out. This company offers significant upside potential and has strong analyst backing. Moreover, APLD stock has witnessed a pullback, providing a buying opportunity.

Why Is Applied Digital a Compelling Stock?

Applied Digital develops and operates next-generation digital infrastructure and is well-positioned to capitalize on the demand for cloud services and advanced computing power. The company operates through three core business segments, including blockchain data center hosting, cloud services, and high-performance computing (HPC) data center hosting.

Thanks to its exposure to these high-growth sectors, the company is delivering solid revenues, with its top line increasing 51% year-over-year in the second quarter of its fiscal 2025 (FY25). The cloud services segment saw significant traction, bolstered by the deployment of additional GPU clusters.  The segment added $27.7 million to the company’s top line. Its data center hosting segment generated $36.2 million in revenue.

Looking ahead, Applied Digital is poised for continued growth. The company has 286 megawatts of data center capacity across two fully contracted locations in North Dakota, both of which are operating at full capacity. With growing institutional interest in cryptocurrency, the launch of Bitcoin exchange-traded funds (ETFs), and potential favorable regulatory shifts in the U.S., demand for Applied Digital’s services in this sector remains strong.

Additionally, the company’s cloud services business is experiencing rapid growth as it fulfills existing contracts and explores new opportunities. By the end of Q2 FY25, the company had six GPU clusters online and is evaluating further expansion as next-generation GPUs become available. This move aligns with the increasing demand for AI-driven applications, strengthening its position in the fast-growing market.

The company is rapidly expanding its hosting segment, with a 400-megawatt data center campus under construction in Ellendale, North Dakota. This facility is expected to become a key asset and contribute meaningfully to its revenue growth. 

APLD Stock’s Decline: A Buying Opportunity

Despite its strong fundamentals, Applied Digital stock has recently pulled back due to broader macroeconomic uncertainty and concerns over a potential slowdown in AI infrastructure spending. However, this dip presents a compelling buying opportunity for long-term investors.

Applied Digital’s strong revenue growth, diverse business segments, and partnerships make it an attractive investment option. With increasing demand for cloud computing, AI, and cryptocurrency-related services, the company is well-positioned for long-term growth.

Wall Street analysts remain highly optimistic about Applied Digital’s prospects. Eight of nine analysts covering the stock have given it a “Strong Buy” rating, while one rates it as a “Moderate Buy.” The consensus price target of $12.44 suggests potential upside of more than 100% from current levels.