Applied Digital (APLD): REIT Transition and CoreWeave Deal Signal Long-Term Dividend Growth

Applied Digital Corporation (APLD) has emerged as a pivotal player in the AI infrastructure boom, with its strategic pivot toward a real estate investment trust (REIT) structure and its landmark CoreWeave deal positioning the company for sustained growth. These moves, if executed successfully, could transform APLD into a dividend powerhouse for investors. Let's dissect the implications for valuation, dividends, and risk.

The REIT Pivot: A Strategic Rebalance for Stability

APLD's decision to transition into a data center REIT is a calculated shift toward capitalizing on its core asset—its high-performance computing (HPC) infrastructure. By divesting its volatile Cloud Services segment and focusing on data center ownership, the company aims to align with REIT requirements emphasizing lease-based, predictable income. This restructuring is critical because REITs must distribute at least 90% of taxable income as dividends, creating a direct link between asset performance and shareholder returns.

The company's Ellendale HPC campus in North Dakota, designed for AI workloads, is the linchpin of this strategy. With up to 1 gigawatt of scalable power capacity and partnerships like its $5 billion funding agreement with Macquarie Asset Management, APLD is building a fortress of revenue-generating assets.

CoreWeave Deal: A $7 Billion Revenue Lock-in

The CoreWeave partnership—a 15-year lease for 250 MW of capacity, expandable to 400 MW—has been a game-changer. The $7 billion in projected revenue over the lease term provides a stable cash flow foundation, with annual escalators ensuring inflation protection. This deal not only validates APLD's infrastructure but also positions it as a preferred partner for hyperscalers in the AI race.

The stock's 48–54% surge after the announcement underscores investor enthusiasm. The CoreWeave deal's long-term nature reduces reliance on short-term market swings, making it a key pillar for APLD's transition to a REIT.

Valuation: A Data Center Play with AI Tailwinds

APLD's valuation is now tied to two critical factors: its ability to secure additional hyperscaler leases and its progress toward REIT conversion. The Ellendale campus's modular design allows phased development, enabling APLD to scale capacity as demand grows. With AI compute needs projected to expand exponentially, the 1 GW capacity ceiling offers significant upside.

The $375 million SMBC financing and Macquarie's $5 billion commitment provide the liquidity to execute this vision. While Q3 2025 results showed a net loss due to debt costs and Cloud Services volatility, the path to profitability is clearer post-divestiture.

Dividend Potential: The REIT Catalyst

If APLD transitions to a REIT, its dividend potential could skyrocket. REITs typically offer yields in the 5–10% range, and APLD's stable lease income could support a dividend payout ratio aligned with industry norms. The CoreWeave deal's $7 billion revenue stream alone represents ~$467 million in annualized income, which—if distributed as dividends—could yield ~4–5% based on current stock prices.

Risks to Consider

• Execution Risk: Delays in Ellendale's construction or lease agreements could disrupt cash flow.
• Regulatory Hurdles: REIT conversion requires compliance with IRS rules, including income sourced from real estate.
• Demand Volatility: AI adoption could falter, though hyperscaler commitments suggest robust demand.

Investment Recommendation

APLD is a high-risk, high-reward bet for long-term investors. The CoreWeave deal and REIT pivot create a compelling narrative for dividend growth, but investors must monitor milestones:
1. Ellendale's 2025 completion and hyperscaler lease signings.
2. Regulatory clarity on REIT conversion timing.
3. Dividend policy post-conversion.

For now, APLD is a hold until these uncertainties resolve. A buy signal would emerge with confirmation of REIT status and additional lease agreements.

In conclusion, Applied Digital's strategic moves position it to capitalize on the AI infrastructure boom. While risks remain, the combination of the CoreWeave deal and REIT transition makes APLD a stock to watch for investors seeking exposure to both tech growth and dividend potential.