AI Data Centers: Skip the Startup, Buy the Fortress

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Okay, so everyone’s chasing the shiny object that is Applied Digital (APLD +14.68%). It’s the AI data center du jour, up 272% in a year? Impressive. Like, “accidentally-bought-a-yacht” impressive. But let’s be real, that kind of growth is usually fueled by hope and venture capital, which is basically the same thing, just with more kombucha. They’re building these data centers, which is great, except building stuff is…expensive. And they haven’t actually turned a profit yet. It’s like deciding to open a restaurant after you’ve spent all your money on the chandelier.

Plus, they’re super reliant on a few big clients – the hyperscalers. Which is fine, unless those hyperscalers decide they want to build their own data centers. Then you’re left with a lot of very expensive, empty rooms. It’s the tech equivalent of a timeshare. And did I mention the valuation? Thirty-six times revenue? That’s not a multiple, that’s a dare.

Look, I’m not saying Applied Digital is doomed. Just…complicated. If you’re looking for a less stressful investment, something that doesn’t require a full-time therapist, let me suggest Palo Alto Networks (PANW +0.01%). It’s not sexy, but it’s like investing in a really good pair of sensible shoes. You might not get Instagram likes, but you’ll be able to walk comfortably through any market downturn.

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AI is Driving Revenue (and Sanity)

Palo Alto Networks is the grown-up in the room. They’re the biggest enterprise cybersecurity provider, which basically means they keep the bad guys out of everyone else’s data. They’ve been around since 2005, which in tech years is practically prehistoric. They have almost 10% of the market, which is a decent share, even in a field that’s more crowded than a New York subway car.

About 80% of their revenue comes from subscriptions – recurring revenue, people! – and 20% from actual products like firewalls. It’s a solid business model. It’s like selling coffee versus selling espresso machines. You make more money keeping people caffeinated.

In the first quarter, revenue was up 16% year-over-year, which is good. But the real kicker is next-gen security ARR grew 29%. They’re focusing on the stuff that actually matters: protecting AI applications and data centers. It’s like upgrading from a lock on your front door to a full-blown security system.

Strategic Acquisitions (aka Damage Control)

Earnings were down 4% last quarter, thanks to a couple of acquisitions – CyberArk and Chronosphere. But these aren’t impulse buys. CyberArk helps with identity security, which is huge. And Chronosphere bolsters their AI security efforts. It’s like finally getting around to installing that smoke detector.

They’re anticipating ARR of $15 billion to $20 billion by 2030, up from $5.9 billion now. That’s a lot of money. It’s the kind of money that makes you wonder if you should have gone to law school. They’re even prepping for the quantum computing revolution, partnering with IBM on a quantum-safe solution. Because apparently, everything is about to be hackable by supercomputers. Great.

Their CEO, Nikesh Arora, said enterprises have less than five years to get ready for quantum computing. Five years! That’s less time than it takes to binge-watch all of The Crown.

Wall Street is (Cautiously) Optimistic

All this investment in AI and innovation took a bite out of earnings, which led to a sell-off in the fall. Investors got spooked by all the AI hype and high valuations. The stock dropped 18% since late October. Which, honestly, is a relief. It means you can actually buy some shares without taking out a second mortgage.

The stock is still trading at 47 times forward earnings, which is higher than the Nasdaq-100 average. But 80% of analysts rate it a buy, with a median price target of $230 per share. That’s a potential 27% return. It’s not a guaranteed yacht, but it’s a decent down payment.

Their remaining performance obligations (RPO) grew 24% last quarter to $15.5 billion. That’s a lot of signed contracts. It’s like having a full calendar of meetings. You might not get everything done, but at least you look busy.

They’re projecting revenue growth of 14% for fiscal 2026, down slightly from 15%. Adjusted earnings per share growth will be slower too. But that’s okay. These investments should set them up for long-term growth. It’s like planting a tree. You don’t get fruit immediately, but eventually, you’ll have shade.

Look, Applied Digital is interesting. But Palo Alto Networks is the safer bet. It has fewer variables, is cheaper, expects robust growth, and is positioning itself for the future. It’s not glamorous, but it’s reliable. And in the world of tech, that’s a rare and valuable thing.

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2026-01-27 22:32