Applied Digital Secures $5 Billion AI Factory Lease with US Hyperscaler

Applied Digital (APLD) announced Wednesday a monumental $5 billion infrastructure lease agreement with a U.S.-based hyperscale data center operator, signaling the escalating demand for AI infrastructure. The 15-year lease will provide 200 megawatts of capacity at Applied Digital’s Polaris Forge 2 campus in North Dakota, bringing the company’s total leased capacity to 600 megawatts across its two Polaris Forge sites.

Despite the substantial deal, shares of Applied Digital experienced a downturn, falling over 7% following the announcement. This decline extends a recent slump, pushing the stock down more than 20% in the past week. However, it’s crucial to note that the stock has still nearly quadrupled year-to-date, reflecting the underlying investor confidence in the company’s strategic direction, particularly its focus on meeting the rapidly growing needs of the AI sector. Analysts suggest profit-taking may be playing a role in the recent slide.

The agreement underscores the relentless investment by major cloud providers and internet giants in artificial intelligence infrastructure. These companies are aggressively expanding their data center footprint to accommodate the anticipated surge in computational demands driven by AI applications. While Applied Digital remained tight-lipped about the identity of its new partner, it emphasized that the agreement is with an “investment grade hyperscaler.”

CEO Wes Cummins, in a recent appearance on CNBC’s “Squawk on the Street,” highlighted the key players in the hyperscale market, naming Microsoft (MSFT), Meta (META), Oracle (ORCL), Amazon (AMZN), and Alphabet’s Google (GOOGL) as primary targets for partnerships. Cummins previously disclosed that CoreWeave (CRWV) is the tenant for the initial lease at its facilities.

“We started down this path a couple years ago and we stubbed our toe a few times, but I think we’ve really dialed in the process of the ability to build at scale,” Cummins stated, adding that the company has a significant 4 gigawatt “active pipeline,” indicating substantial further growth potential. This scale is increasingly important as AI model training requires exponentially more compute power.

Earlier this year, Applied Digital secured two long-term lease agreements with CoreWeave for 250 megawatts of capacity. These agreements were projected to generate $7 billion in rental revenue over 15 years, leading to a significant 48% jump in the company’s share price at the time. This highlights the market’s sensitivity to announcements tied to generative AI infrastructure buildout.

Furthermore, Applied Digital secured $5 billion in infrastructure funding from Macquarie Asset Management earlier this month, further solidifying its financial position. This combination of leasing agreements and funding secures Applied Digital as a key player in the digital infrastructure supply chain.

“We believe Polaris Forge 2 builds on that momentum, reflecting the strength of our partnerships and the speed at which we’re reshaping the AI infrastructure landscape,” Cummins emphasized in Wednesday’s press release. Experts believe the race is on to secure sufficient infrastructure to support the AI boom. Applied Digital’s focus on speed and scale could position it to capitalize on the increased demand from deep learning and large language models.