Why Applied Digital Stock Is Plummeting Today

Applied Digital (NASDAQ: APLD) stock is falling Thursday amid bearish sentiment shaping the broader market. The company's share price was down 8.8% as of 3:40 p.m. ET. At the same point in the day's trading, the S&P 500 and the Nasdaq Composite index had fallen 4.8% and 5.8%, respectively.

The Trump administration announced yesterday that a universal 10% tariff on all foreign-sourced products will take effect on April 5. Just four days later, a series of extra import taxes will be levied on goods from a select list of countries that the U.S. has large trade deficits with. Investors are selling out of stocks in response, and growth-dependent tech players including Applied Digital are seeing big pullbacks.

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Tariff news is sinking Applied Digital stock

Applied Digital is a U.S.-based provider of data-center services, and most of its customers are based within the country. On the other hand, the core hardware that powers the company's cloud-based processing operations relies on components and manufacturing services from overseas companies. As just one example, the Nvidia graphics processing units (GPUs) that are central to Applied Digital's data-center operations rely on chips that are manufactured by Taiwan Semiconductor Manufacturing in Taiwan.

What's next for Applied Digital?

Applied Digital has been posting strong sales growth thanks to rising demand for artificial intelligence (AI) computing services, but the company continues to have a heavily forward-looking valuation even after today's big pullback. The business isn't profitable yet and is valued at approximately 5 times this year's expected sales.

Beyond making investors more cautious about stocks with growth-dependent valuations, Applied Digital will likely face some business-specific challenges from the new import taxes. The tariffs look poised to raise prices on key hardware for the company. As a result, the company's shift into profitability has likely been pushed further out.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.