Forget Applied Digital: This AI-Ready Data Center Powerhouse Already Boasts the Scale It Dreams Of

Applied Digital (NASDAQ: APLD) has been one of the market's hottest AI stocks. The data center operator's stock surged nearly 540% over the past 12 months, impressing bulls with rapid growth, new leases, and the planned spin-off of its cloud business.

On the surface, Applied Digital seems like a great AI play. It builds and buys big data centers, powers them up, and leases them to companies that install their own servers. It even launched its own cloud-based AI infrastructure platform in 2023, but it plans to spin it off this year because it's unprofitable and awkwardly positioned as a competitor to its own customers.

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From fiscal 2022 to fiscal 2025 (which ended last May), Applied Digital's revenue soared from $8.5 million to $144.2 million (excluding its cloud business). At the end of fiscal 2025, it operated two data center sites in North Dakota with a combined capacity of 286 MW. It's already contracted $16 billion in lease payments for the next 15 years, and most of those payments will come from the cloud-based AI infrastructure company CoreWeave (NASDAQ: CRWV).

To meet that surging demand, Applied Digital is expanding its Polaris Forge 1 campus in Ellendale. However, that expansion is costly -- and analysts expect it to remain deeply unprofitable even after it spins off its cloud business. That means it will take a long time for the company to achieve its goal of becoming a data center real estate investment trust (REIT) -- which is obligated to pay out at least 90% of its taxable income as dividends.

On the bright side, Wall Street expects Applied Digital's revenue to surge 61% in fiscal 2026 and another 55% in fiscal 2027 as the AI market expands. Yet with a market capitalization of $10.1 billion, it's already richly valued at 19 times next year's sales. It will also likely continue to incur steep losses as it expands its data center sites.

So instead of chasing Applied Digital's massive gains, it might be smarter to invest in a more established data center REIT that generates stable profits and pays reliable dividends. Equinix (NASDAQ: EQIX) checks all of those boxes and is exposed to the same AI tailwinds.

Why is Equinix a more stable data center play than Applied Digital?

Equinix operates more than 270 data centers, making it one of the world's largest data center REITs with a total capacity of approximately 1 GW. It usually splits its data centers into smaller units than its enterprise-oriented competitors, which allows it to serve a broader range of industries and smaller businesses. It also directly connects its clients to each other through its interconnection services.

Equinix serves over 10,000 customers and connects them through more than 499,000 interconnections. It claims the ecosystem is larger than the "next 10 competitors combined" and generated more than 40 times Applied Digital's revenue in its latest fiscal year.

From 2020 to 2024, Equinix's revenue and earnings per share (EPS) grew at CAGRs of 10% and 19%, respectively. It currently pays a forward dividend yield of 2.3% and has raised that payout every year since its conversion into an REIT 10 years ago.

For 2025, it expects its adjusted funds from operations (AFFO) per share -- which most REITs use to gauge their profitability -- to rise 8%-11% to $37.95-$38.77, easily covering its forward dividend rate of $18.76 per share. Its stock still looks reasonably valued at 21 times the midpoint of that estimate, while its market cap of $79.2 billion values it at just eight times its 2026 sales.

Analysts expect its revenue and EPS to rise 6% and 74%, respectively, for the year. From 2025 to 2027, Wall Street expects its revenue and EPS to grow at CAGRs of 9% and 6%, respectively. The AI market's expansion should drive that growth, along with rising demand for its interconnect services (tethered to its own Equinix Fabric ecosystem) and its AI-oriented "xScale" joint ventures with its hyperscale customers.

Those growth rates aren't as impressive as Applied Digital's, but they're arguably more sustainable. That's why Equinix looks like a much better buy for conservative investors.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Equinix. The Motley Fool has a disclosure policy.