Forging the Future of Intelligence

Applied Digital Corporation (Nasdaq: APLD) has started its transition from an ambitious infrastructure developer to an actual operational player in the global AI race.

Following its fiscal second quarter 2026 results, the company has signaled an inflection point, moving from a heavy investment and construction phase into a growing revenue generator with a side of continued heavy investment. With a multi-billion-dollar backlog and a strategic geographic location, APLD is trying to position itself as the AI Factory for the world’s most demanding hyperscalers.

What Applied Digital Does: Building the Foundations of AI

Founded in 2021 and headquartered in Dallas, Applied Digital designs, builds, and operates high-performance, sustainably engineered data centers. While the company began with a focus on blockchain (crypto) hosting, it has undergone a radical strategic shift toward High-Performance Computing (HPC) and Artificial Intelligence (AI) workloads, a reasonable transition that many companies have made as AI became the talk of the town.

The core of their offering is the Polaris Forge build-out. Unlike traditional data centers designed for general enterprise use, Polaris Forge facilities are purpose-built for ultra-high-density compute clusters. This includes proprietary waterless cooling technologies and modular designs capable of supporting the massive power requirements of NVIDIA’s next-generation GPUs (like the Blackwell and future Rubin architectures).

Strategic Expansion: The Dakota Advantage

Applied Digital is currently focused on two primary campuses in North Dakota: Polaris Forge 1 (Ellendale) and Polaris Forge 2 (Harwood). The choice of the Dakotas is not accidental; management views the region as a durable competitive advantage for four key reasons:

1. Abundant Energy: North Dakota generates 50% more electricity than it consumes, providing a surplus that is rare in traditional data center hubs like Northern Virginia.
2. Climate: The cold northern climate allows for cheap cooling for over 200 days a year, drastically reducing operational costs and improving Power Usage Effectiveness.
3. Cost: Electricity rates in the region are approximately 24% below the national average.
4. First Mover Advantage: By locking in power agreements before the current AI boom, APLD secured capacity that would now take years, if not a decade, to bring online elsewhere.

The company’s expansion is accelerating. Polaris Forge 1 recently reached Ready-for-Service for its first 100MW building (ELN-02), which is part of a 400MW campus fully leased to CoreWeave. That deal is worth $11B across 15 years and will be ready to generate ~1.85M per MW annually or ~740 million in revenue per year just from that one contract once fully up. Meanwhile, Polaris Forge 2 is under construction, with 200MW already leased to a major investment-grade hyperscaler. That deal is $5B across 15 year so seemingly slightly less value per MW than the CoreWeave deal.

The Macquarie Partnership: A Two-Step Financing Engine

A critical element of Applied Digital’s ability to scale is its sophisticated financing framework with Macquarie. This partnership is split into two distinct facilities that align with different stages of the data center lifecycle:

1. Pre-Lease Acceleration: Macquarie Equipment Capital

Applied Digital utilizes a $100 million development loan facility with Macquarie Equipment Capital to fund the riskiest phase of development. This capital is used for early-stage sourcing, planning, and initial construction activities before a lease is officially signed.

• The Strategy: This allows APLD to break ground and advance projects ahead of the competition. By the time a hyperscaler is ready to sign, the site is already moving toward completion.
• Current Status: Subsequent to the Q2 end, APLD made its first draw on this facility to support development work for multiple new sites currently in advanced negotiations.

2. Post-Lease Scaling: Macquarie Asset Management (MAM)

Once a lease is executed with an investment-grade hyperscaler, APLD transitions to a $5 billion perpetual preferred equity facility provided by MAM.

• Ownership Structure: This facility is designed to allow APLD to retain over 85% common equity ownership of each site. This is a massive differentiator from competitors who often have to give up 50% or more of their projects to secure infrastructure funding.
• Investment Metrics: Macquarie invests roughly $2.25 million for every 1 MW of executed lease capacity. To date, APLD has drawn $900 million from this facility to support Polaris Forge 1 and 2.
• Terms: The preferred equity carries a 12.75% dividend (often paid-in-kind to preserve cash) and a 1.8x multiple-on-invested-capital (MOIC) liquidation preference.

Q2 2026 Earnings: Beating Guidance

For the quarter ended November 30, 2025, Applied Digital delivered a significant beat across several key metrics:

• Revenue: $126.6 million, representing a 250% year-over-year increase. While $73 million came from one-time fit-out services for CoreWeave, the commencement of actual lease revenue ($12 million recognized) marks the start of a long-term recurring revenue stream. The 100 MW that’s up and running should generate ~185M in recurring revenue annually with more coming soon as the build out continues.
• Adjusted Net Income: $0.1 million ($0.00 per share), which outperformed analyst expectations of a loss.
• Adjusted EBITDA: $20.2 million, up from $6.1 million in the prior year.
• Free Cash Flow: And this is the crux of the matter is -$900M for the last 6 months as a ton of money is poured into the buildout but also breaking ground on additional facilities.

The Liquidity Reality: Cash vs. Debt

As of November 30, 2025, the company reported $2.3 billion in total cash, cash equivalents, and restricted cash. However, a deep dive into the balance sheet reveals a more complex picture:

• Senior Secured Notes: The vast majority of this cash ($2.35 billion) was generated by the issuance of 9.25% senior secured notes due 2030. This is capital specifically allocated for the construction of ELN-02 and ELN-03 at Polaris Forge 1, debt service reserves, and repayment of the SMBC loan.
• Debt Load: Total liabilities have swelled to $3.2 billion, with total debt standing at $2.6 billion.
• Cash Burn Rate: Applied Digital is currently in a phase of massive capital outflow. Net cash used in investing activities for the first six months of fiscal 2026 was $818.5 million, primarily for purchases of property and equipment. Meanwhile, cash flow from operations remains negative (-$97.9 million for the same period) meaning that we’re seeing quite a significant outflow to drive this growth cycle and that will continue be the case as the company is unlikely to be cash flow positive for the next few years. This will come in the form of debt, issuance of preferred stock($590M in the last 6 months) as well as common stock($196M in the last 6 months).

The Dilution Risk: The Price of Gigawatt Ambition

Investors must grapple with the reality that Applied Digital’s Gigawatt Pipeline comes with a high price tag. Despite the strong headline cash position, the current cash burn rate remains high as the company simultaneously builds out multiple multi-billion dollar campuses.

Why More Dilution is Likely

1. Capital Intensive Fit-Outs: While CoreWeave paid $85 million this quarter for fit-out activities, APLD still bears significant upfront costs for infrastructure that aren’t fully covered by tenant payments. With expectations of further buildouts, it wouldn’t be a surprise if we see free cash flows that are in the negative billion+ range for the next few years. For a company that’s currently sitting at a market cap of $8.2B, that would mean either a ton of additional shares(share count has gone from 157m as of 5/31/24 to 279m as of 11/30/24).
2. The Macquarie Preferred Trap: While the $5 billion Macquarie facility is touted as a way to avoid public markets, it is still a form of expensive equity. The 12.75% dividend rate is a significant drag on future earnings. If construction costs exceed estimates or lease ramp-ups are delayed, the company may be forced to issue more Series G preferred stock or common equity to shore up corporate-level liquidity.
3. Common Equity Shelf: In December 2025, the company filed a shelf registration (Form S-3) for the resale of up to 2.4 million shares of common stock. While small, it signals that the company is keeping the equity door open to manage its high-speed growth.

Management Commentary: Wins and Headwinds

CEO Wes Cummins emphasized that the demand side of the equation is not the issue. Instead, the focus has shifted to execution and scaling.

What is going well:

• Operational Execution: Delivering 100MW on time has qualified APLD with five of the six major hyperscalers they target.
• Inbound Demand: Following the announcement of the Polaris Forge 2 lease, management noted that inbound demand has increased meaningfully.

Problems and Risks:

• Supply Chain: APLD has locked in MEP (Mechanical, Electrical, and Plumbing) equipment for 600-700MW per year, but scaling beyond that requires expanding their supplier base.
• Grid Stewardship: As they scale to gigawatt levels, management is working with Babcock & Wilcox to explore on-site power solutions to ensure they don’t overwhelm local utilities.

Analyst Q&A Highlights

1. ChronoScale Spin-off: The cloud business is merging with EKSO Bionics to form ChronoScale. APLD will own a large majority and believes this allows the data center business to be valued as a pure-play infrastructure entity.
2. Advanced Discussions: Management revealed they are in advanced discussions for three additional sites totaling 900MW.
3. Pricing Stability: Cummins noted that the contracting environment remains favorable, with customers increasingly willing to accept 15-year “non-cancelable” terms to secure power.

Valuation and Competitor Analysis

Applied Digital presents a unique valuation proposition.

• Legacy Players (Equinix, Digital Realty): These companies trade at high multiples of EBITDA (20x+) but are struggling to find power for new developments.
• The Pure AI Play: APLD is valued not on current earnings, but on the $16 billion in contracted backlog.

Based on that backlog info, it seems like the company is able to get ~$1.75M annually per MW. At 600MW, that would mean the company generates $1.05B in revenue just from their leases and might have additional revenue from potential fit-out services. At that level and a 50% EBITDA margin(which is what these data center landlords usually get), this is a company that could generate 525M in EBITDA before any new deals are signed. Throw a 20x multiple on that and you get a $10.5B market cap which isn’t too far from today’s valuation. However, you also have to account for any potential dilution that could happen before that build out occurs which means there might not be much upside from today’s price.

An investor has to be on further expansion to have this make sense. Let’s take an optimistic 2000MW capacity a few years down the line gets you to about $3.5B in revenue or about $1.75B in EBITDA. Throw a 20x multiple on that and you’re sitting at a 35B valuation which is what an investor has to hope for in order for this make sense. Keep in mind that positive EBITDA nor even positive Adjusted NOI means that the company is actually cash flow positive. We’ll likely be in a spot where free cash flow is negative for quite some time.

All in all, the tricky part is getting there and the cost required to make that happen. The amount of dilution and preferred equity and debt to reach 2000MW will be very high and will make for a very volatile trip to get there. After all a $35B valuation sounds great when the stock trades at a $8.7B market cap but if the # of shares increases 3x to get there then the stock price might not move much from today’s $30 price point. The company has also talked about an eventual transition to becoming a REIT which makes a company like DLR somewhat comparable and that stock hasn’t moved much in the past 5 years despite the data center boom.

Still with $2.3 billion in liquidity and a locked-in path to gigawatt-scale capacity, APLD is trying to become a foundational infrastructure provider for the AI era. However, the path to profitability will likely involve ongoing equity dilution, whether through the expensive Macquarie preferred facility, opportunistic common stock offerings or big debt raises. Investors should view APLD as a high-growth infrastructure startup where the eventual cash flow rewards could be massive, but the capital requirements to get there remain a persistent risk.

For now, for me, the risk reward seems a bit tilted towards risk but this may be a stock to look at closer when and if it goes through a bit of a correction.

Disclaimer: This article is based on a specific personal investment strategy and does not constitute financial advice. Always perform your own due diligence before investing. I may be long stocks discussed in this article in the future. I am not a financial advisor and do stock analysis as a hobby. Opinions are my own. This is not financial advice. Consult with a financial advisor before making any investments as stock investing comes with risk of loss.