Applied Digital (NASDAQ: APLD) has inked a landmark 15-year, take-or-pay lease with an unnamed U.S. investment-grade hyperscaler, adding 300 megawatts of critical IT load at its new Polaris Forge 3 campus. The agreement pushes the company's total contracted baseline revenue to $31 billion across four AI Factory sites, marking a significant milestone in the race to monetize AI infrastructure.
Lease Details and Financial Impact
The lease, valued at approximately $7.5 billion over its base term, requires the customer to pay regardless of capacity usage. Combined with existing contracts, Applied Digital now has over 1 gigawatt of contracted capacity. If customers exercise all renewal options, the total potential revenue could reach $73 billion. The company's AI Factory model focuses on high-power data centers designed for AI training and inference workloads.
Market Context
The deal comes as major cloud providers, including Microsoft, Google, and Oracle, aggressively compete for power-ready sites to support AI expansion. Applied Digital's announcement underscores a broader industry shift from speculative AI buildouts to revenue-generating contracts. The Polaris Forge 3 site, located in a northern U.S. state, spans over 600 acres and will draw approximately 430 megawatts from the grid, targeting 300 megawatts of computing power. Initial operations are expected to begin in August 2027.
Strategic Positioning
CEO Wes Cummins highlighted the company's disciplined, repeatable AI Factory model, noting that Applied Digital is now marketing over 1.7 gigawatts of additional utility power tied to its current and upcoming sites. Approximately 65% of contracted revenue now comes from U.S.-based investment-grade hyperscalers, reinforcing the firm's credibility in the AI data center market.
Financials and Risks
Despite the bullish news, analysts remain cautious on valuation and execution risks. As of February 28, Applied Digital held $2.1 billion in cash and equivalents but carried $2.7 billion in debt. Fiscal third-quarter revenue surged 139% to $126.6 million, though the net loss attributable to common stockholders widened to $100.9 million. The company acknowledges risks including construction delays, financing hurdles, power availability, and customer concentration.
Stock Performance
Shares jumped approximately 8% to $39.52 in after-hours trading following the announcement. However, Zacks Investment Research reiterated a Hold rating on Applied Digital, citing a forward sales multiple of 13.56x versus Microsoft's 8.26x, and pointing to execution risks such as utility approvals and substation construction timelines.
Outlook
Applied Digital recently spun off its cloud business into ChronoScale, retaining about 97% of shares, to separate long-term hosting deals from shorter-cycle cloud operations. The company's ability to deliver Polaris Forge 3 on time and within budget will be critical to maintaining investor confidence. With a massive lease backlog and growing demand for AI infrastructure, Applied Digital is positioned as a key player, but the path to profitability remains fraught with challenges.
