Applied Digital faces Q4 test as $16B lease backlog grows

Applied Digital reports fiscal Q4 earnings Wednesday with $16 billion in signed hyperscaler leases backing its AI data center buildout, though investors will scrutinize whether revenue growth is translating into sustainable profitability.

"The company has REIT-grade cash flow visibility attached to a roughly 1 GW pipeline," Benchmark analyst Josh Sullivan, who rates APLD a buy with a $76.70 target, said.

Revenue reached $126.64 million in the fiscal third quarter, up 139.3% year over year, while adjusted EBITDA jumped to $44.14 million from $6.26 million a year earlier. Adjusted EPS of $0.09 beat the -$0.21 consensus, marking the fourth straight earnings beat. The company holds $1.73 billion in cash and recently raised $2.15 billion in senior secured notes at 6.750% to fund the Polaris Forge 2 expansion.

The 400 MW Polaris Forge 1 is fully contracted to CoreWeave for roughly $11 billion in total revenue, and a 200 MW lease with an investment-grade hyperscaler adds another $5 billion over its term. Management targets $1 billion in net operating income within five years — a threshold that would validate the data center landlord model for AI infrastructure.

Why APLD Stands Apart From the AI Infrastructure Peer Set

The natural comparison is IREN, the other pure-play AI data center operator transitioning from Bitcoin mining. IREN posted 0% quarterly revenue growth year over year at its last report against APLD's 139.3%. Over the past 12 months, APLD returned 174.7% versus IREN's 122.05%. The difference comes down to contract structure: APLD's revenue is backed by long-duration hyperscaler leases, not GPU spot pricing.

Nvidia's $3 billion investment in under-the-radar tech stocks, disclosed in a recent filing, has also drawn attention to the AI infrastructure supply chain. While APLD was not among Nvidia's disclosed holdings, the broader trend of hyperscaler and chipmaker capital flowing into data center capacity supports the thesis that demand for AI compute will remain elevated through 2027. CoreWeave, APLD's largest tenant, has itself benefited from this dynamic, securing Nvidia GPU allocations that underpin its own cloud services business.

The Profitability Question

GAAP losses remain real. The company's CoreWeave concentration — Polaris Forge 1 represents roughly 69% of total contracted revenue — is a risk if that customer's own business model faces pressure. CoreWeave recently hit profitability, according to its latest earnings, but insider selling at the cloud provider has raised questions about management conviction.

APLD has begun diversifying. The Polaris Forge 2 lease with an investment-grade hyperscaler reduces single-customer dependency. Insiders have logged 12 recent buy transactions, showing confidence from those closest to the numbers. With $1.73 billion in cash and a 6.750% cost of capital on its latest debt offering, the company has the runway to complete its current buildout without equity dilution.

For investors, the Q4 report will answer whether the revenue trajectory is accelerating or decelerating. The 11 analysts covering APLD rate it a buy with zero holds or sells, and the consensus price target of $76.70 implies 155% upside from the current $30.08. If management delivers another beat and maintains its $1 billion NOI target, the stock could re-rate closer to data center REIT multiples rather than speculative growth stock valuations. APLD currently trades at roughly 6.5x forward revenue, a discount to data center REITs like Equinix at 9x, reflecting the profitability discount the market is demanding.

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