Applied Digital details Q2 surge, AI leases, spinoff

January 16, 2026 at 03:09 UTC

6 min read

Key Points

Applied Digital’s Q2 FY26 revenue jumped 250% to $126.6 million
Company secured 600 MW of hyperscale AI leases worth about $16 billion
Financing in place to build two major North Dakota campuses through 2027
Cloud unit to be spun into ChronoScale via merger with EKSO Bionics

Revenue inflection as first AI lease income begins

Applied Digital reported a sharp step-up in results for its fiscal second quarter 2026, ended November 30, 2025, as its first large-scale AI data center moved from construction to revenue generation. Total revenue reached $126.6 million, a 250% increase from $36.2 million a year earlier. The quarter was driven by $73 million of tenant fit‑out services in the high‑performance computing (HPC) hosting business and $12 million of recognized lease revenue from the commencement of the first CoreWeave lease at the Polaris Forge 1 campus. On a cash basis, lease receipts were about $8 million, with the difference due to 15‑year straight‑line accounting under ASC 842. The company’s Data Center Hosting segment, which operates 286 megawatts of customer ASICs across two North Dakota facilities, contributed $41.6 million of revenue, up 15% year over year and generating roughly $16 million of segment operating profit on a $131 million asset base. Overall, Adjusted EBITDA was $20.2 million, and adjusted net income was approximately breakeven at $0.1 million or $0.00 per share, while GAAP net loss was $31.2 million, or $0.11 per share, reflecting higher stock‑based compensation, professional services and interest expense.

Hyperscale AI leases underpin multi‑year buildout

The quarter coincided with Applied Digital’s first major AI campus moving into service and additional large contracts being put in place. Polaris Forge 1, described as an “AI factory” campus in North Dakota, energized its first 100‑megawatt building on schedule and is expected to reach 400 megawatts for CoreWeave across three contracted buildings by the end of 2027, representing about $11 billion in prospective lease revenue over approximately 15 years. Applied Digital also announced a roughly $5 billion, 15‑year lease with a U.S.-based investment‑grade hyperscaler for 200 megawatts at the Polaris Forge 2 campus near Harwood, North Dakota, a $3 billion project that is scheduled to begin initial operations in 2026 and reach full build‑out in 2027. Together, the two campuses represent 600 megawatts of leased capacity and around $16 billion in prospective lease revenue. Management said inbound demand from hyperscalers has increased and that the company is in advanced discussions for three additional campuses totaling 900 megawatts, though it emphasized that there can be no assurance of future contracts.

Financing framework and balance sheet position

Applied Digital detailed a multilayered capital structure intended to support simultaneous construction of large campuses. The company has a $100 million development loan facility with Macquarie Equipment Capital to fund pre‑leased construction and a $5 billion preferred equity facility with Macquarie Asset Management. To date, it has drawn $900 million from the preferred equity facility to support Polaris Forge 1 and 2. During the quarter, Applied Digital completed a $2.35 billion private offering of 9.25% senior secured notes due 2030 to finance two of the three buildings at Polaris Forge 1 and to refinance existing debt. Management noted that project‑level debt typically carries higher initial rates and said it aims to refinance at lower rates once buildings are operational. At quarter‑end, the company held $2.3 billion in cash, cash equivalents and restricted cash against $2.6 billion of debt, most maturing in 2030, and approximately $2.1 billion of total equity. These figures exclude $382.5 million of financing proceeds raised after quarter‑end. The company said it intends to maintain a strong liquidity position through construction while relying heavily on third‑party capital and retaining majority ownership of each site.

Strategic focus on Dakotas, power, and advanced cooling

Management highlighted the Dakotas as a key long‑term advantage for AI and cloud data centers, citing low‑cost, abundant energy, a cooling climate, available land, and a supportive regulatory environment. Applied Digital has adopted modular, prefabricated construction methods, including multiple concrete plants and truck‑delivered components, to reduce timelines and costs while designing buildings to support a range of GPU, ASIC and networking architectures for both AI and traditional cloud workloads. To secure additional power more quickly than traditional natural gas turbines would allow, the company signed a limited notice‑to‑proceed agreement with Babcock & Wilcox Enterprises for a steam‑turbine‑based natural gas solution and is in discussions with utilities, particularly in the Dakotas. Applied Digital also led a $15 million investment in liquid‑cooling company Corintis as part of a $25 million round, describing Corintis’s cold‑plate technology as aimed at high‑density AI chips and compatible with rising chip power levels while using similar liquid volumes, which management said could help future‑proof its infrastructure.

ChronoScale spinout to separate cloud from infrastructure

Applied Digital’s board approved a plan to separate its cloud business into a new entity, ChronoScale, through a merger with EKSO Bionics. The company has signed a non‑binding letter of intent and expects to reach a definitive agreement in early 2026, targeting closing in the first half of 2026 following shareholder approval. ChronoScale is described as a dedicated GPU‑accelerated compute platform for demanding AI workloads built on the Applied Digital Cloud platform, which management said was among the first to deploy NVIDIA H100 GPUs at scale. On closing, Applied Digital expects to own over 80% of ChronoScale. The cloud business currently generates over $60 million in trailing 12‑month revenue and has $313 million in assets. Management said separating the cloud platform from the data center infrastructure business is intended to allow each to scale independently with greater strategic and capital flexibility, while ChronoScale is expected to benefit from continued access to Applied Digital’s large‑scale data centers.

Contracting environment, pipeline, and community initiatives

On the earnings call, management said the leasing landscape has remained robust over the past six months, with pricing described as stable to slightly better for Applied Digital and non‑price terms improving. Current hyperscale contracts are characterized as effectively non‑cancelable for 15 years, with 100% make‑whole provisions and transferability limited to counterparties with equal or higher credit ratings. The company reported being “qualified” with most investment‑grade hyperscalers, noting that initial onboarding can take 3 to 12 months but subsequent expansions or new campuses with the same counterparties can move more quickly. Applied Digital indicated it is exploring both organic expansion and third‑party opportunities in regions with stranded power and that each of its existing and in‑process campuses is designed to scale to at least 1 gigawatt, with two current sites capable of 2 gigawatts or more. Management outlined an internal path to 5 gigawatts of capacity by around 2030–2032 if three additional 2‑gigawatt campuses are completed. The company also announced Applied Digital Cares, a community initiative to fund education, health, innovation and local development programs in regions where it builds and operates.

Key Takeaways

Applied Digital has transitioned from pure construction to meaningful lease revenue, with long-duration contracts now anchoring its growth outlook.
Two contracted North Dakota AI campuses and three additional sites in advanced talks give the company a visible multi-year expansion pipeline.
A structured financing model with Macquarie and project-level debt allows large-scale builds while maintaining balance sheet liquidity.
The planned ChronoScale spinout will separate asset-heavy data centers from the GPU cloud platform, while keeping Applied Digital a majority owner.
Investments in power solutions and liquid cooling indicate management is aligning infrastructure design with rising AI compute and energy demands.

References

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