Why Applied Digital Is a High-Conviction Bet Amid Data Center Supply Constraints

The global data center industry is at a pivotal inflection point, driven by the explosive growth of artificial intelligence (AI). According to a report by McKinsey, global data center demand is projected to require approximately $6.7 trillion in investment by 2030, with $5.2 trillion of that sum tied to AI-related workloads alone. This staggering figure underscores a critical bottleneck: the infrastructure required to support AI's computational demands is expanding at a pace far exceeding traditional capacity planning. As AI models grow in complexity and scale, the race to secure power, land, and construction resources has intensified, creating a fertile ground for companies that can deliver scalable, efficient solutions.

Applied Digital (APLD) stands out as a prime beneficiary of this paradigm shift. The company has positioned itself at the forefront of the AI infrastructure boom by securing $16 billion in contracted revenue through long-term leases with hyperscalers like CoreWeave. These agreements, including a 400 MW campus in North Dakota fully leased to CoreWeave and a 200 MW project with an unnamed U.S. investment-grade tenant, provide a clear revenue runway and reduce operational risk. By locking in multi-year lease terms, Applied Digital has transformed its business model from one reliant on low-margin tenant fit-out services to a stable, recurring revenue stream.

A 4 GW Pipeline and 12-Month Build-Time Edge

The urgency of the AI-driven demand gap has forced data center developers to rethink construction timelines. Applied Digital has slashed its build time from 24 months to just 12 months, a feat attributed to streamlined processes, modular designs, and a robust supply chain. According to Bain & Company, AI workloads are growing more than twice as fast as Moore's Law, making speed a competitive necessity.

Applied Digital's 4 GW development pipeline, anchored by its North Dakota AI campuses, is a testament to its strategic foresight. The first 100 MW phase of Polaris Forge 1 was marked as "Ready for Service" in Q4 2025, with a second 150 MW facility slated for mid-2026. Polaris Forge 2, a 200 MW campus, is also under construction and expected to come online in 2026. These projects are not speculative; they are backed by pre-leased agreements, ensuring cash flow visibility and mitigating the risks of underutilized capacity.

Macquarie Financing: A Risk-Reduction Catalyst

One of the most compelling aspects of Applied Digital's strategy is its partnership with Macquarie Asset Management. The company secured $5 billion in perpetual preferred equity financing, with a first draw of $112.5 million completed in October 2025. This non-dilutive capital provides a 12.75% annual dividend rate, which could increase in subsequent years. Macquarie's involvement also includes a right of first refusal for future projects, up to an additional $4.1 billion, signaling strong institutional confidence.

This financing structure is particularly advantageous in a high-interest-rate environment. By securing long-term, low-cost capital, Applied Digital avoids the volatility of public markets and focuses on execution. The partnership also aligns with broader industry trends: as noted by the U.S. Department of Energy, initiatives like the Speed to Power program are prioritizing infrastructure that can scale rapidly to meet AI demand.

Valuation Potential and Analyst Projections

Despite its aggressive growth, Applied Digital trades at a 33x forward revenue multiple, a premium to its industry average. However, this valuation is justified by the company's transition to a high-margin, asset-light model. Analysts project revenue to surge from $308.43 million in 2026 to $528 million in 2027, with EBITDA margins expanding from 23.97% to 53.74%. These improvements stem from the shift to recurring lease revenue, which offers greater predictability and scalability compared to one-time fit-out payments.

The key catalyst for unlocking value lies in lease revenue recognition. With the first 100 MW of Polaris Forge 1 now operational, Applied Digital is poised to begin recognizing revenue in late 2025, significantly altering its financial profile. As additional capacity comes online in 2026 and 2027, the company's earnings visibility will further strengthen, potentially attracting a broader base of institutional investors.

Conclusion: A Strategic Play on the AI Bottleneck

The $6.7 trillion global data center demand gap is not just a number-it represents a systemic challenge that will reshape industries, economies, and markets. Applied Digital's ability to secure long-term leases, accelerate build times, and secure non-dilutive financing positions it as a rare winner in this high-stakes environment. While valuation concerns persist, the company's strategic alignment with AI's insatiable demand for compute power and its disciplined execution make it a high-conviction bet for investors willing to capitalize on the infrastructure bottleneck.

As the AI race intensifies, Applied Digital's North Dakota campuses may well become the blueprint for the next generation of data center development.