Artificial intelligence is revolutionizing the world. AI models like OpenAI's ChatGPT quickly became mainstream, with autonomous vehicles and humanoid robots on the way. All of these innovations require AI chips, which is why investors have been loading up on semiconductor stocks like Nvidia and Broadcom.
These AI chips work, but there's one big problem. They all require significant power to operate. AI models and innovations require gigawatts to operate, and traditional data centers aren't cutting it. Those buildings aren't optimized for AI workloads, and that's where AI data center providers like Applied Digital (APLD 6.12%) come in.
Applied Digital has roughly 4 gigawatts worth of data center capacity at the moment, and that could translate into billions of dollars in annual recurring revenue once it's all set up and deals have been established. Applied Digital has already entered three lease agreements with CoreWeave (CRWV 5.42%), with the total revenue coming to approximately $11 billion over 15 years.
The leases cover 400 megawatts, and Applied Digital's 4 gigawatt pipeline suggests the company could support nine additional deals like the CoreWeave contract. Here's why Applied Digital could expand beyond CoreWeave and continue to win over tech giants.
Image source: Getty Images.
The AI race is intense
The key players in the AI race have all committed to spending more money on this technology. Alphabet, Microsoft, Amazon, and Meta Platforms are some of the top players in the industry. These companies generate billions of dollars in quarterly profits and view AI as the next internet boom.
AI models, autonomous vehicles, and humanoid robots have the potential to change how people shop and interact with the world. Companies know the potential of AI and have already thrown a lot of money at Nvidia. Now, they are increasingly looking at the energy bottleneck that companies like Applied Digital solve.
Right now, Applied Digital makes almost all of its AI revenue from CoreWeave. Other AI data center providers like Iren (IREN +0.07%) and Cipher Mining (CIFR 2.63%) have made deals with Microsoft, Amazon, Alphabet, and other tech companies. It's fair to assume Applied Digital will land deals like that in the future, especially since it has proven to be a trustworthy option for CoreWeave.
NASDAQ: APLD
Key Data Points
Applied Digital is a leading data center builder
Timelines are critical for maintaining a lead in the AI race, and Applied Digital is doing its part. The AI data center provider told investors that its 100 MW building at Polaris Forge 1 is nearing completion while remaining on time and on budget.
Fulfilling project benchmarks will help Applied Digital build more trust with tech giants. Applied Digital Chairman and CEO Wes Cummins also views it that way.
"We feel this third lease validates our platform and execution, positioning Applied Digital as a trusted strategic partner to the world's largest technology companies," Cummins said in the Q3 press release. "With hyperscalers expected to invest approximately $350 billion into AI deployment this year, we believe we are in a prime position to serve as the modern-day picks and shovels of the intelligence era."
Applied Digital's 4-gigawatt pipeline also puts it ahead of most AI data center stocks. Iren has approximately 3 gigawatts in its pipeline, while Cipher Mining has 3.2 gigawatts in its pipeline. Applied Digital has the lead, which will come in handy once data centers are built and tech companies scramble to sign big deals.
New deals can happen quickly and suddenly change the long-term view
Applied Digital has a 15-year contract with CoreWeave for $11 billion that covers 400 megawatts. It's a big contract, but it's not the only one in the industry. Iren signed a five-year, $9.7 billion deal with Microsoft for 200 megawatts. Cipher Mining also signed a 15-year deal with Amazon Web Services for $5.5 billion, and that contract covers 300 megawatts.
A single deal adds billions of dollars to an AI data center provider's revenue. These are long-term agreements that result in steady recurring revenue. When Applied Digital has all 4 gigawatts ready to go, it can support enough deals to make billions of dollars each year. The company may have only made $64 million in Q1 FY26, but revenue growth should compound quickly based on the CoreWeave leases and future deals. That development sets the stage for Applied Digital stock to continue its rally.
