Applied Digital spends billions on AI data centers, most capacity pre-revenue

Applied Digital has raised more than $4 billion in debt this year to build five AI data center campuses, yet more than half of its contracted capacity with CoreWeave has yet to generate recurring lease revenue.

"The demand from hyperscalers for GPU-dense, liquid-cooled infrastructure continues to outpace available supply," Wes Cummins, chief executive officer of Applied Digital, said during the company's fiscal third-quarter earnings call. "We are executing on the largest buildout in the company's history."

The company placed 75 megawatts of new capacity into service July 1 at its Polaris Forge 1 campus in North Dakota, bringing live capacity to 175 megawatts. That remains well below the 400 megawatts already leased to CoreWeave under long-term agreements. Applied Digital is simultaneously developing four additional campuses — Polaris Forge 2, Delta Forge 1 and Delta Forge 2 — and has begun construction on a fourth building at Polaris Forge 1 before the third building reaches full utilization.

The gap between contracted capacity and live revenue leaves Applied Digital in a capital-intensive phase with no near-term path to positive free cash flow. The company's $2.7 billion debt stack and interest coverage near 1.2 times mean further project-level financing is likely before the full 1.4 gigawatts of contracted capacity begins generating recurring income.

Revenue surged 139 percent year over year to $126.6 million in fiscal Q3 2026, driven by the HPC hosting segment, which became the largest revenue contributor at $71 million. Adjusted EBITDA reached $44.1 million, though the company reported a GAAP net loss of $99.3 million for the quarter, weighed down by depreciation, interest expense and stock-based compensation.

The company has relied on project-level debt to fund construction. It raised $1.59 billion through senior secured notes due 2031 for the fourth building at Polaris Forge 1, following a $300 million bridge facility for the same project and a $2.15 billion senior secured notes offering for Polaris Forge 2. Total debt stood at approximately $2.7 billion at quarter end, offset by $2.1 billion in cash.

How Applied Digital Stacks Up Against IREN and TeraWulf

Applied Digital competes with IREN and TeraWulf in the race to build AI infrastructure for hyperscale customers. Unlike those rivals, Applied Digital is pursuing a broader multi-campus expansion strategy that requires larger upfront capital commitments and greater reliance on external financing. The company has secured five hyperscaler leases totaling 1.4 gigawatts of contracted capacity, including a 210-megawatt, 15-year take-or-pay agreement with a "high investment-grade hyperscaler" announced in June. That deal alone is expected to generate about $5.2 billion in base-term contracted revenue.

What's at Stake for Investors

The investment case hinges on whether Applied Digital can convert its contracted pipeline into cash-generating assets before its debt burden becomes unsustainable. Craig-Hallum raised its price target on the stock to $79 from $75 in June, maintaining a Buy rating, and the consensus 12-month median price target stands at $74.50 — implying roughly 90 percent upside from current levels. But with a forward price-to-earnings ratio above 500 times and interest coverage barely above 1 times, the margin for execution error is thin. The stock has fallen 22 percent over six consecutive trading sessions, wiping out about $2.7 billion in market value.

This article is for informational purposes only and does not constitute investment advice.