Applied Digital's Q2 2026 Earnings Call: Contradictions Emerge on Power Timelines, Expansion Plans, and AI Strategy Discrepancies

Date of Call: None provided

Financials Results

• Revenue: $126.6M, up 250% YOY from $36.2M
• EPS: -$0.11 per share (net loss of $31.2M); adjusted net income $0.0 per share (adjusted net income $0.1M)

Guidance:

• Lease revenues expected to ramp next quarter as buildings come online across calendar 2026–2027.
• Anticipate meaningful revenue growth over the next 18–24 months as additional buildings are energized.
• Expect to surpass long-term goal of $1 billion in NOI within five years.
• Plan to begin construction on at least one new campus by end of January using Macquarie pre-lease facility.
• Chronoscale (cloud spinout) expected to close in H1 2026 with Applied owning >80%.

Business Commentary:

• Hyperscale and Campus Expansion:
• Applied Digital announced agreements for 600 megawatts of lease capacity with two hyperscalers, representing approximately $16 billion in prospective lease revenue over approximately 15 years.

• This was driven by significant demand for AI infrastructure and strategic positioning in low-cost energy regions.

• Revenue and Financial Performance:

• Applied Digital reported revenues of $126.6 million for the fiscal second quarter of 2026, up 250% from the prior year.

• The growth was primarily due to revenue from HPC hosting and the commencement of the first CoreWeave lease at Polaris Forge One.

• Financing and Lease Revenue:

• The company drew on a $100 million development loan facility and accessed $900 million from a preferred equity facility, supporting ongoing construction projects.

• Initiated lease revenue was recognized on a straight-line basis over 15 years, aligning with ASC 842 lease accounting.

• Construction and Design Capabilities:

• Applied Digital significantly evolved its construction and design capabilities, enabling modular and efficient data center designs.
• This allowed for reduced construction timelines and lower overall costs, contributing to the company's competitive advantage.

Sentiment Analysis:

Overall Tone: Positive

• Company reported $126.6M revenue (+250% YOY), began lease revenues and $73M turnkey fit-out revenue, signed ~600 MW of hyperscale leases representing ~$16B prospective lease revenue, and stated "we now expect to surpass our long-term goal of $1 billion in NOI within five years," indicating confidence and positive outlook.

Q&A:

• Question from Nick Giles (B. Riley Securities): Should we expect the Applied platform to be a host for any future GPU purchases, or how could Applied ultimately help attract incremental customers for Chronoscale?
  Response: Chronoscale's key advantage will be access to Applied Digital's large-scale data center facilities, giving the spun-out cloud platform easier scale and market access.

• Question from Nick Giles (B. Riley Securities): You signed an agreement for a limited notice to proceed with Babcock & Wilcox; what kind of optionality does this give going forward, and what should we be looking for in the upcoming contract release?
  Response: The Babcock & Wilcox solution enables earlier power deployment using proven steam-turbine-based technology on natural gas, potentially accelerating capacity by several years versus new gas turbine lead times; expect site/schedule details in Q1.

• Question from Darren Aftahi (Roth Capital): Can you talk generally about the landscape for leases and how pricing may have changed over the last six months? Is it improving, staying the same, going down?
  Response: Contract pricing has been stable to slightly better over the last six months, with materially more favorable contractual terms (stronger cancellation protection, transferability and make-whole provisions).

• Question from Darren Aftahi (Roth Capital): Can you talk a little bit about the pre-lease financing? What does that say about your confidence when you’re progressing on sites where you don’t have signed leases?
  Response: The Macquarie pre-lease facility is used to fund groundworks when management has high confidence a lease will be signed, enabling earlier construction and demonstrating conviction in expected deals.

• Question from Rob Brown (Lake Street Capital Markets): Give us a sense of what steps have to happen between now and closing Chronoscale and the timing for a finalized agreement and shareholder vote.
  Response: Chronoscale will be structured as a merger with a definitive agreement expected later this month/early February, followed by a shareholder vote and a closing in H1 2026 (likely Apr–May, possibly as early as March).

• Question from Rob Brown (Lake Street Capital Markets): As you think about the cloud business growth possibility, what is the growth opportunity and capacity expansion potential for the standalone business?
  Response: Spinning out Chronoscale positions the cloud business to raise its own capital and scale aggressively by leveraging Applied Digital's data center capacity to capture large compute deals in the growing AI market.

• Question from Mike Grondahl (Northland Securities): How many sites are you having advanced discussions about and how many megawatts?
  Response: We are in advanced discussions on three sites totaling about 900 megawatts.

• Question from Mike Grondahl (Northland Securities): How would you characterize the pipeline today?
  Response: The pipeline is robust; the primary constraint is our ability to scale construction and execution across multiple sites, not demand.

• Question from George Sutton (Craig-Hallum): Having been qualified by a few investment-grade hyperscalers, how much simpler is it to get agreements across the finish line versus a new entrant?
  Response: Being through onboarding with five of the six target hyperscalers significantly shortens contracting timelines—what can take 3–12 months from scratch is much more expedited for repeat customers.

• Question from George Sutton (Craig-Hallum): You mentioned ~$16B of prospective lease revenue in 2025 and advanced discussions on three sites/900 MW; am I putting these together correctly?
  Response: Yes—those figures are consistent with our commentary, but nothing is final until contracts are executed and timing may be staggered across sites.

• Question from John Todaro/Michael Donovan (Needham & Company/Compass Point): What did you learn from the first build execution that gives confidence you can continue to execute on development builds?
  Response: We standardized designs (fourth-generation), reduced SKUs and suppliers, secured supply chains well in advance, and streamlined construction processes, enabling on-time, on-budget delivery at scale.

• Question from John Todaro/Michael Donovan (Needham & Company/Compass Point): Are there additional pockets of near-term stranded power available to acquire?
  Response: We continue to find more organic and third-party power opportunities regularly and are evaluating them, though current activity is mostly organic and in-flight.

• Question from John Todaro/Michael Donovan (Needham & Company/Compass Point): Can you touch upon expansion opportunities at Polaris Forge One and Two—do you still have confidence reaching ~1.4 GW and ~1.0 GW respectively?
  Response: Each campus can scale to at least a gigawatt (and some well beyond); with current campuses and planned sites we have a clear path to multiple gigawatts (potentially ~5 GW+) over the coming years.

• Question from George Sutton (Craig-Hallum): With discussions around liquid cooling (e.g., NVIDIA's Rubin), what makes Correntis a competitive solution?
  Response: Correntis' patterned microchannel cold-plate design maps chip heat points and can scale cooling density as chips increase power, helping future-proof infrastructure and deliver higher power density with efficient liquid cooling.

Contradiction Point 1

Power Infrastructure and Timing

It involves the timing and availability of power infrastructure, which is critical for the development and expansion of data centers and campuses, affecting strategic planning and market confidence.

How many sites are in advanced discussions, and what's the current pipeline status? - Mike Grondahl (Northland Securities)

2026Q2: We're in advanced discussions for three sites and 900 megawatts. - Wes Cummins(CEO)

What is the status of the power infrastructure for Polaris Forge 2's planned campus? - Robert Brown (Lake Street Capital Markets, LLC)

2026Q1: Initial utility power is planned, with infrastructure to be put in place, meeting timelines for the 2026 and 2027 campus startup. - Wesley Cummins(CEO)

Contradiction Point 2

Power Availability and Timing

It involves the expected availability of power, which is crucial for the commencement of operations and revenue generation, impacting financial forecasts and market strategy.

What does being certified by hyperscalers mean, and how does it simplify the process? - George Sutton (Craig-Hallum) via Logan Lillehaug

2026Q2: Power is available in '26. - Wes Cummins(CEO)

Are there updates on power availability in South Dakota? - Austin Douglas Ortiz (Needham & Company)

2026Q1: Power is available in '26. The key hold-up is securing a sales tax exemption for IT equipment, similar to 41 other states. We're working through this process. - Wesley Cummins(CEO)

Contradiction Point 3

Expansion and Development Cadence

It involves the company's plans for expansion and development cadence, which are key factors for investor anticipation and strategic planning, affecting market strategy.

How many sites are you in advanced discussions with, and what is the current pipeline status? - Mike Grondahl(Northland Securities)

2026Q2: We do expect to break ground and work has already started for that on 1 additional campus and potentially 2 before the end of this year. - Wes Cummins(CEO)

How should we think about development cadence in 2026? Are there plans to break ground on a second campus this year? - Nicholas Giles(B. Riley Securities)

2025Q4: We expect to break ground on 1 additional campus and potentially 2 before the end of this year. - Wes Cummins(CEO)

Contradiction Point 4

AI Cloud vs AI Host Business Model and Capacity Planning

It involves the strategic balance between AI Cloud and AI Host business models, which impacts the company's revenue strategy and customer acquisition, affecting company strategy.

What is your growth strategy for the cloud business, and will the Applied platform host future GPU purchases? How will Applied attract additional customers for Chronoscale? - Nick Giles(B. Riley Securities)

2026Q2: Chronoscale will benefit from the relationship with Applied Digital and access to large-scale data center facilities. Deploying accelerators is crucial, but access to data center facilities is more important. - Wes Cummins(CEO)

How do you differentiate between AI Cloud and AI Host in your construction calculus? - Lucas Pipes(B. Riley Securities)

2024Q1: Anchor tenants bring their own equipment for a hosting business. We keep 30% of capacity for our cloud service, which will be spread into traditional cloud regions for inferencing, while training moves to North Dakota for large clusters. - Wes Cummins(CEO)

Contradiction Point 5

Lease Pricing and Financing Strategy

It involves the financial aspects of the company's expansion and growth strategy, including lease pricing and financing, which impact the company's financial stability and investment decisions, affecting financial forecasts.

How have lease prices changed over the past six months, and what does pre-lease financing reflect on confidence in progressing sites without signed leases? - Darren Aftahi(Roth Capital)

2026Q2: Lease pricing has been stable to slightly better over the past six months, with more favorable contract terms. Pre-lease financing is used when there's a high degree of confidence in securing leases, as seen with Macquarie Equipment Capital. - Wes Cummins(CEO)

What are the capital intensity and financing targets for HPC data centers? - Lucas Pipes(B. Riley Securities)

2024Q1: Our new design is a 3-story structure for higher density. We aim for an 80% loan to cost for construction. Equity financing will be at a site level, similar to Mezz debt in the capital markets. - Wes Cummins(CEO)