Applied Digital: AI Data Center Hype or Real Value?

Key Points

• Applied Digital was one of the first crypto-mining hosting companies to explore high-performance computing (HPC) hosting for AI workloads since GPUs are the common denominator.
• Applied Digital has several AI data centers under construction, backed by financing from Sumitomo Bank and Macquarie Asset Management.
• Applied's gameplan was brilliant, but execution is lagging behind companies like Core Scientific, which have already closed over $10 billion in contracts for HPC hosting.

Applied Digital Inc. NASDAQ: APLD designs and operates purpose-built artificial intelligence (AI) data centers. The computer and technology sector company originally provided cryptocurrency mining hosting services, as Applied Blockchain provided hosting services for one of the largest bitcoin miners, MARA Holdings Inc. NASDAQ: MARA. In 2022, Applied made a strategic pivot along with a name change to focus on hosting artificial intelligence (AI) and high-performance compute (HPC) workloads and infrastructure.

Applied Digital stock surged from the hype of the AI data center buildout trend, but has tanked as the company’s results haven’t lived up to the hype yet. Let’s explore whether there is any substance to the sizzle and whether this pullback is an opportunity or a falling knife to avoid.

The Difference Between Conventional Data Centers and AI Data Centers

Let’s delve into the sizzle behind the AI data center buzz. Data centers are not new; they've been around for decades, but data centers designed to handle artificial intelligence (AI) and high-performance computing (HPC) workloads are. Traditional servers can be powered by 200 watts up to 1.5 kW of electricity.

However, AI servers operating NVIDIA Co. NASDAQ: NVDA GPUs can consume up to 10 kW of electricity (up to 7x more). Future GPU architectures from Blackwell to Ruben will require even more electricity to power. With more electricity comes heat, which will require even more liquid cooling to prevent the chips from melting.

AI data centers are specially equipped to handle higher electrical capacity and more liquid cooling at a minimum, along with low-latency networking interconnects and state-of-the-art flash storage.

Macquarie Asset Management (MAM) will invest $5 billion in capital to support Applied’s next-generation AI data centers, building up to 2 GW of capacity.

Hyperscalers Are Driving AI Data Center Growth

The biggest purveyors of AI data centers are the hyperscalers.

Meta Platforms Inc. NASDAQ: META plans to spend $62.5 billion in capital expenditures (CapEx) and build a 2GW+ data center campus the size of Manhattan in Louisiana. Meta has 27 global data centers.

Microsoft Co. NASDAQ: MSFT plans to spend $80 billion in 2025 CapEx to support its Azure infrastructure and growth.

Amazon.com Inc. NASDAQ: AMZN, Alphabet Inc. NASDAQ: GOOGL, and Oracle Co. NYSE: ORCL are all massive hyperscalers pursuing more AI data center capacity to manage their cloud services.

Applied Digital Is On Track for Its Ellendale Campus

While they mention they have been in advanced discussions with US-based hyperscalers, Applied Digital has not officially mentioned specific hyperscaler clients due to confidentiality concerns. Their non-hyperscale customers include Character.AI, Together AI, Spring Mud, and a number of crypto miners, including MARA, JointHash, and Hashing LLC. The company broke ground in its first 100 MW 369,000 square-foot HPC facility in Ellendale, North Dakota, for AI/HPC workloads.

The first building is set to come online on its Ellendale campus. Two more buildings are planned to be constructed. The company continues its “negotiations with multiple US-based hyperscalers” for leases up to 400 MW of capacity.

Company Considering REIT Transition After Cloud Exit

Applied Digital reported fiscal third quarter 2025 earnings per share (EPS) loss of 8 cents, beating consensus estimates by 2 cents. Revenues grew 22.1% year-over-year (YOY) to $52.92 million, falling short of consensus estimates of $64.82 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $10 million. The company plans to sell its cloud services business and is also considering transitioning into a REIT.

Applied Digital also closed $375 million in financing with Sumitomo Mitsui Banking Co. (SMBC), using a portion to repay its obligations for the November 2024 Macquarie Promissory note. The Data Center Hosting business generated $35.2 million, down 7% YOY, in the quarter.

The Cloud Services business generated $17.8 million, up 220% YOY. Keep in mind that this is the business they are planning to sell.

Brilliant Game Plan, Lagging Execution: A Wait-and-Show-Me Situation

Applied Digital stock fell heading into earnings, which may have helped to put a floor on the stock price. Management’s shift to HPC hosting from crypto mining hosting in 2022 was visionary since they both rely on GPUs. Applied was one of the first to make the strategic pivot from crypto to AI.

Companies like Core Scientific Inc. NASDAQ: CORZ adopted this strategy later, emerging from bankruptcy in 2024. However, Applied Digital’s execution of the strategy has been frustratingly slow.

Core Scientific itself has grown into a major AI data center operator and closed $10.2 billion in contracts spanning 12-year terms for HPC hosting with AI hyperscaler Core Weave Inc. NASDAQ: CRWV in just over one year since emerging from bankruptcy, whereas Applied Digital began exploring the idea nearly three years ago and has yet to name/close a major hyperscaler customer but continues to tease “negotiations” with many US-based hyperscalers.