Applied digital shares jump as AI data center revenue beats estimates

Applied Digital reported second-quarter revenue that was higher than what Wall Street expected, helped by strong demand for data centers used for artificial intelligence work. The company said customers need very large computing power to train and run AI models, and Applied Digital is benefiting from this growing demand.

Applied Digital posted revenue of $126.6 million for the fiscal second quarter that ended on November 30, much higher than analyst estimates of about $88 million, as reported by Reuters. After the earnings report, Applied Digital shares rose about 7% in extended trading. The company operates large-scale data centers and is focusing on infrastructure that can support AI workloads needing massive compute capacity.

Big AI data center deals

Applied Digital has signed billions of dollars in long-term lease agreements with major customers, showing strong future demand. This includes a $5 billion lease deal with a U.S.-based hyperscaler for 200 megawatts (MW) of capacity at its Polaris Forge 2 campus in North Dakota. The company said it has now signed leases with two hyperscalers across two campuses in North Dakota.


CEO Wes Cummins said, "The Dakotas represent a compelling region for hyperscalers due to their cool climate and abundant energy", as cited by Reuters. Cummins added, "We believe our first-mover advantage, combined with our proven ability to execute technically complex data center construction, positions Applied Digital with a strong competitive advantage."

Revenue growth beats estimates

Applied Digital also reported that its revenue was up 250% from the same quarter last year, showing very strong year-on-year growth, as stated by Investing.com. Analysts had expected revenue of around $86.67 million, but the company clearly beat that forecast. Adjusted earnings per share came in at $0.00, which was better than analyst expectations of a loss of $0.12 per share. Shares of the company jumped 4.8% in after-hours trading following the earnings announcement.

The strong results were mainly driven by the High-Performance Computing (HPC) Hosting Business, which brought in $85 million in revenue for the quarter. This included $73 million from tenant fit-out services and $12 million from rental revenue, as the first building at Polaris Forge 1 became fully operational. The Data Center Hosting Business added $41.6 million in revenue, up 15% from last year.

Applied Digital also has a 400 MW agreement with CoreWeave at Polaris Forge 1, which could generate about $11 billion in lease revenue over time, as per the report by Investing.com. The company ended the quarter with $2.3 billion in cash, cash equivalents, and restricted cash, strengthening its financial position. Applied Digital recently completed a $2.35 billion senior secured private notes offering and has drawn $900 million under a preferred equity deal with Macquarie Asset Management.

Last month, the company announced it would spin off its cloud business and merge it with EKSO Bionics to form a new AI-focused company called ChronoScale, as stated by Reuters. Applied Digital is expected to retain more than 80% ownership of ChronoScale as it moves toward becoming a data center real estate investment trust.

FAQs

Q1. Why did Applied Digital revenue rise this quarter?

Applied Digital earned more money because demand for AI data centers and high computing power increased.

Q2. Why did Applied Digital shares go up after earnings?

Shares rose because the company reported revenue that was much higher than market expectations.