The rapid global adoption of artificial intelligence (AI) is driving a surge in investments in AI infrastructure. However, the key constraint in this expansion is no longer GPU supply, but the shortage of purpose-built data centers capable of supporting the extreme power density and advanced cooling requirements of modern AI workloads. Hence, public hyperscalers are expected to spend almost $350 billion on AI data centers in 2025 alone.
Applied Digital (APLD 3.89%) is fast proving to be one of the significant beneficiaries of this trend, with its high-density, liquid-cooled "AI factories," or data centers optimized to run AI training and inferencing workloads.
Here's why the company can emerge as a smart pick for retail investors.
Image source: Getty Images.
Demand for Applied Digital services is robust
Applied Digital's nearly $16 billion in contracted backlog for AI data center-related revenue highlights its robust long-term demand visibility. This includes an expanded contract with hyperscaler CoreWeave (CRWV 2.38%) worth $11 billion in revenue over 15 years. Accordingly, CoreWeave has expanded its lease from 250-megawatt (MW) data center capacity to the entire 400 MW under construction at Polaris Forge 1 campus in Ellendale, North Dakota.
Recently, the company also leased 200-MW under-construction data center capacity at the Polaris Forge 2 campus in North Dakota to an unnamed U.S. hyperscaler for 15 years, adding another $5 billion in contracted revenue.
Analysts expect Applied Digital's fiscal 2026 (ending May 31, 2026) revenue to grow by 37.9% to $297.3 million. However, even this robust revenue estimate pales in comparison to the scale of the company's contracted backlog, highlighting substantial multiyear growth embedded in its pipeline.
Applied Digital has operational integration with hyperscalers
CoreWeave has also contracted Applied Digital for tenant fit-out services (installing and configuring the entire power, cooling, networking, and other infrastructure) on the first 100-MW data center capacity at Polaris Forge 1 to make it fully operational for deployment. While these services contributed $26.3 million in revenue in the first quarter, the company expects even more revenue in the second quarter.
Although tenant fit-out is a one-time, low-margin business, its impact goes beyond contributing to Applied Digital's top-line and bottom-line performance. These services have helped the company position itself as an end-to-end builder and operator of AI data centers.
Effective supply chain management
Since 2023, Applied Digital has been working on securing land, power, electric equipment such as transformers and generators, and expert construction crews to build next-generation AI data centers. These early moves to secure the supply chain for several years are helping the company rapidly ramp up capacity, even as the entire industry battles extended lead times for critical equipment, generators, and transformers. With its multiyear supply allocations, the company has managed to reduce construction timelines from 24 months to 12 to 14 months, and is now scaling capacity at multiple campuses in parallel.
Applied Digital is pursuing capacity expansion
Applied Digital has announced that its first 100-MW capacity of the 400-MW facility under construction at the Polaris Forge 1 campus is now complete and ready for service. The company now plans to further expand capacity at this campus to over 1 gigawatt (GW), as new regional transmission infrastructure becomes available from 2028 to 2030.
Applied Digital is currently constructing 300-MW capacity at Polaris Forge 2, and expects this capacity to come online in 2027. Management also believes that the capacity at Polaris Forge 2 will reach 1 GW in tandem with the availability of electrical power.
Applied Digital also has a 4-GW active development pipeline, which includes projects that can enter the construction phase in the next six to 12 months. The company is evaluating new sites in additional markets.
Robust funding
Applied Digital has secured sufficient funding to advance its expansion plans. The company announced a private offering of senior secured notes to raise $2.35 billion.
Macquarie Capital has also announced an investment of up to $5 billion in preferred equity financing for the company's AI data centers. The company has already drawn $112.5 million from this preferred equity facility to invest in the Polaris Forge 1 facility. Coupled with traditional project financing, this $5 billion investment is expected to unlock data center capacity buildout worth $20 billion to $25 billion.
NASDAQ: APLD
Key Data Points
Applied Digital's valuation is on the expensive side
Applied Digital stock trades at 39.5 times sales, which appears expensive at first glance. However, the valuation seems justified considering its anticipated cash flows over the next few years. Management estimates that the CoreWeave lease at the Polaris Forge 1 campus will eventually contribute $500 million in annual net operating income once the entire 400-MW capacity comes online. Coupled with Polaris Forge 2 capacity, the company expects the net operating income run rate to reach $1 billion in the next five years.
Applied Digital is not without risks, especially considering that it is a capital-intensive business relying heavily on hyperscaler deals and is also unprofitable. However, considering all the factors, Applied Digital can prove to be one of the best AI winners, especially for long-term investors who can ignore short-term volatility in the stock.
