Red-hot data center designer, builder, and operator Applied Digital (APLD 4.03%) reported incredible growth in the second quarter of fiscal 2026. Revenue soared 250% year over year to $126.6 million as demand for AI data centers exploded.
Applied Digital delivered the first 100 MW of AI computing capacity at its Polaris Forge 1 campus, which will eventually provide 400 MW of total capacity for CoreWeave. The company also signed a 15-year lease with an unnamed U.S. hyperscaler for 200 MW of AI capacity at the Polaris Forge 2 campus, a deal expected to generate approximately $5 billion in revenue.
Image source: Getty Images.
A major bottleneck for the AI industry
While demand for AI data centers isn't slowing down, the AI industry is facing a difficult problem. The bottleneck isn't GPUs or buildings, but power generation. AI data centers require enormous amounts of power, and the electric grid simply can't keep up.
Tech giants hungry for more AI computing capacity have been getting creative in their attempts to address this problem. Multiple tech giants are exploring nuclear power, with Meta Platforms signing a 20-year deal with Constellation Energy last year to revive a nuclear power plant in Illinois. Unfortunately, bringing meaningful nuclear power generation capacity online will likely take years.
Another solution is using gas turbines installed directly within AI data centers. This bypasses the problem of waiting for enough power generation capacity to come online from electric utilities. Some companies have even installed retired commercial aircraft engines to keep AI servers running.
While gas turbines are a great solution, a severe shortage threatens to limit how quickly Applied Digital and other data center builders can expand their footprints. John Ketchum, CEO of NextEra Energy, noted last June that a new gas-fired power generation facility would not come online until 2032 due to a shortage of gas turbines . Major gas turbine manufacturers estimated early last year that customers could be waiting 7 to 8 years for new gas turbines.
Applied Digital CEO Wes Cummins described the problem during the second quarter earnings call: "If you get in lines for a traditional natural gas turbine right now, if we put an order in today, we're probably not getting delivery until 2031, 2032 for that equipment. We need power earlier than that."
Applied Digital aims to increase its capacity to 5 gigawatts over the next five years, and the company is currently in advanced discussions for 900 MW of capacity. For any of that to happen, the company needs to solve its power generation problem. In the same earnings call, Cummins described a potential solution.
NASDAQ: APLD
Key Data Points
Looking to the past to solve AI's toughest problem
Applied Digital signed a limited notice to proceed with Babcock & Wilcox in November to deliver 1 GW of power. B&W has been in operation since 1867, specializing in the design and manufacture of steam turbines. Steam turbines have been around for more than a century, and now they're set to be used to power the AI revolution.
B&W will design and install multiple 300 MW natural gas-fired power plants, each featuring boilers and steam turbines, in one of Applied Digital's AI data center campuses. The plan is for the new power generation capacity to come online in 2028, years before standard gas turbines could be installed. The steam turbine generator sets will be supplied by Siemens Energy.
"It's using steam turbines, think of coal plant boilers, but we're using natural gas. That company has actually made a lot of coal-to-natural gas conversions over the past decade plus. And what it allows us to do is go to market earlier," said Cummins during the earnings call.
If Applied Digital has the capability to bring AI data centers online 3 or 4 years earlier than the competition, the company can sign big multi-year deals today to lock in hyperscalers desperate to boost capacity. This competitive advantage won't last forever, but it appears that Applied Digital is the first data center company to turn to steam turbines for power generation. The deal with Applied Digital marked B&W's entry into the AI data center market.
Demand for AI computing capacity isn't slowing down. Applied Digital's 5 GW target is certainly realistic given the demand environment, but securing sufficient power generation capacity was likely to be a challenge. By turning to century-old technology, the company won't have to wait until the 2030s to bring new AI data centers online and continue growing its revenue at an impressive rate.
