Applied Digital's (APLD 4.42%) stock surged more than 270% over the past 12 months. The builder of artificial intelligence (AI) data centers impressed the market with its rapid growth, its new lease agreements with CoreWeave (CRWV 1.88%), the spin-off of its cloud business, and its planned transformation into a real estate investment trust (REIT).
Can Applied Digital maintain that momentum and soar even higher over the next year? Let's review its business model, near-term catalysts, and challenges to make an informed decision.
Image source: Getty Images.
How is Applied Digital's business model evolving?
Applied Digital builds and buys big data centers, makes sure they're adequately powered, and leases those buildings to companies that install their own servers. It initially rented its data centers to Bitcoin miners and other blockchain companies, but it pivoted toward the cloud, high-performance computing (HPC), and AI markets in 2022.
That business model makes it more of a real estate company than a tech company. However, it launched a new subsidiary, Sai Computing, in 2023 to provide its own cloud-based AI services, powered by Nvidia's (NVDA 1.36%) latest GPUs.
Sai grew much faster than its core data center hosting business. Still, it was unprofitable and awkwardly positioned as a competitor to some of its top clients -- including Amazon, Microsoft, and other cloud and AI leaders. That cash-burning business also contradicted its own plan to evolve into a stable REIT, which would simply rent out its data centers and split the rental income with its investors. REITs also need to pay out at least 90% of their taxable income as dividends to maintain a favorable tax rate.
That's why Applied Digital recently agreed to spin out Sai's cloud business and merge it with EKSO Bionics Holdings to create a new company called ChronoScale. Applied Digital will still own about 97% of Chronoscale, it will operate independently from its core data center business.
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Key Data Points
What are Applied Digital's near-term catalysts?
From fiscal 2022 to fiscal 2025 (which ended in May 2025), Applied Digital's revenue surged from $8.5 million to $144.2 million (excluding its cloud business). At the end of fiscal 2025, it operated two data center sites in North Dakota with a combined capacity of 286 MW.
However, its net loss also widened from $23.5 million in fiscal 2022 to $233.7 million in fiscal 2025 as it opened its second data center, purchased more GPUs, and served more customers.
Applied Digital is currently expanding its Polaris Forge 1 campus in Ellendale. It completed a new 100 MW AI/HPC data center last November and plans to complete another 150 MW building this year. It's also in the planning stages for a third 150 MW building. In other words, its capacity could more than double over the next few years.
There's plenty of pent-up demand for those new data centers, and it's already contracted about $16 billion in lease payments over the next 15 years. Most of those payments will come from CoreWeave (CRWV 1.88%). This cloud-based AI server company will initially utilize 250 MW of Applied Digital's capacity and potentially up to 400 MW of its expanded capacity in the future.
Wall Street's near-term estimates for Applied Digital aren't reliable because they still include its cloud business. Those analysts will likely revise their estimates after ChronoScale closes the deal in the first half of 2026. For fiscal 2026, which could end before that deal closes, analysts expect its revenue (including its cloud business) to rise 38% to $297.3 million as it narrows its net loss to $91.1 million. With an enterprise value of $7.0 billion, it looks pricey at 24 times this year's sales.
If we split $16 billion in lease payments over the next 15 years, Applied Digital could potentially generate over $1 billion in annual revenues after it expands its campuses. However, that probably won't happen for at least two or three more years. Its lack of profits will also postpone its long-term plans to become a data center REIT like Digital Realty Trust (DLR 0.33%) and Equinix (EQIX +0.43%) -- which are both firmly profitable and paying stable dividends.
Where will Applied Digital's stock be in a year?
Applied Digital is growing rapidly, but its upcoming spin-off of ChronoScale and the soaring costs of expanding its data centers could compress its near-term valuations. Unlike Digital Realty and Equinix, it is not yet a stable income-generating REIT.
Therefore, Applied Digital's stock might rise moderately over the next 12 months as the AI boom continues, but I don't think it will replicate its massive gains from the past year. Analysts will also likely reduce their near-term estimates for the company once it spins off ChronoScale, so it might be prudent to wait for the smoke to clear before chasing its high-flying stock.
