APLD Q2 Deep Dive: Long-Term AI Leases and Data Center Expansion Anchor Strategic Shift

Digital infrastructure provider Applied Digital (NASDAQ:APLD) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 13% year on year to $38.01 million. Its non-GAAP loss of $0.03 per share was 85.9% above analysts’ consensus estimates.

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StockStory’s Take

Applied Digital’s second quarter results were met with a positive market response, as management highlighted new long-term lease agreements and a refined operational focus. CEO Wes Cummins pointed to the transformative 15-year leases with CoreWeave for the Polaris Forge 1 campus as a pivotal driver, positioning the company as a leader in AI and high-performance computing infrastructure. The company also emphasized progress in optimizing data center build processes, reducing build times, and consolidating suppliers to streamline delivery. These strategic developments, rather than headline financial metrics, shaped investor sentiment this quarter.

Looking forward, management sees significant upside tied to the ramp of the Polaris Forge 1 campus and expansion of relationships with hyperscale clients. CFO Saidal Mohmand outlined expectations for sequential revenue increases as technical fit-out work begins, with lease revenue set to follow. Applied Digital is actively marketing its multi-gigawatt pipeline and negotiating with additional investment-grade hyperscalers, aiming to solidify its presence in the AI infrastructure space. Cummins stated, “With the CoreWeave lease, we believe we’re now roughly halfway toward our internal goal of generating $1 billion in annual net operating income over the next 3 to 5 years.”

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to major new AI leasing deals, operational efficiencies in data center buildouts, and ongoing tenant onboarding with leading hyperscalers.

• CoreWeave lease milestone: The 15-year lease agreements with CoreWeave for up to 400 megawatts at Polaris Forge 1 are expected to generate $7 billion in contracted revenue, establishing Applied Digital’s position in large-scale AI and high-performance computing infrastructure.
• Accelerated build process: Management pointed to a 50% reduction in the number of SKUs and supplier consolidation, which have shortened projected build times from 24 months to 12–14 months, enhancing scalability and delivery speed for future projects.
• Dakota location advantages: The company emphasized its site selection in the Dakotas for abundant, low-cost power and a proprietary liquid cooling design, targeting a lower power usage effectiveness (PUE) of 1.18 and near-zero water consumption, appealing to hyperscale tenants with sustainability priorities.
• Expanded hyperscaler relationships: Beyond CoreWeave, Applied Digital completed diligence and onboarding with two additional investment-grade North American hyperscalers, with ongoing negotiations signaling a broader pipeline of potential large-scale deals.
• Strategic review of Cloud Services: Management is reviewing strategic alternatives for its Cloud Services segment, with updates to be provided when details are finalized, reflecting a focus on core infrastructure and hosting businesses.

Drivers of Future Performance

Management’s outlook centers on ramping major campus projects, winning additional hyperscale leases, and maintaining build efficiency to support margin expansion.

• Polaris Forge 1 ramp: Sequential revenue growth is expected as technical fit-out work at Polaris Forge 1 progresses, with lease revenue recognition beginning after completion and potential for further expansion as additional buildings come online through 2027.
• Hyperscaler deal pipeline: The company is in advanced negotiations with multiple investment-grade hyperscalers for new campuses, particularly in North Dakota and the southern U.S., which could drive substantial contracted revenue if finalized. Management cautioned that the timing and completion of these complex deals remain uncertain.
• Execution and risk factors: Management highlighted the importance of timely project financing, construction timelines, and tenant onboarding as key execution risks. Delays could trigger penalties or defer revenue, while successful delivery could accelerate Applied Digital’s transition to a leading AI infrastructure provider.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will be monitoring (1) the pace and timing of project financing and campus buildouts, particularly at Polaris Forge 1; (2) the progress of negotiations and onboarding with additional hyperscale tenants across North Dakota and other regions; and (3) any strategic decisions regarding the Cloud Services business. Execution on these fronts will be critical for Applied Digital’s ability to scale revenue and margin expansion.

Applied Digital currently trades at $14.85, up from $10.02 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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