Applied Digital (APLD 30.51%), a provider of data center and high-performance computing infrastructure, released its fiscal fourth quarter 2025 earnings on July 30, 2025. The results showed a large headline revenue miss, with GAAP revenue of $38.0 million, far short of the $79.4 million expected by analysts. However, it reported a much narrower non-GAAP net loss per share of $(0.03), compared to the anticipated $(0.09). The period was marked by a significant shift in business model and major new lease agreements aimed at long-term growth in the artificial intelligence (AI) data center sector. While management made clear strategic progress with major contract wins, cost increases and reliance on a single major customer remain prominent concerns for the business.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q3 2025 earnings report.

Business Overview and Recent Focus

Applied Digital operates data centers for two segments: Data Center Hosting, which manages environments for cryptocurrency mining, and high-performance computing (HPC) hosting, which supplies infrastructure for AI workloads. The company’s growth centers on purpose-built facilities designed for high power density, essential for AI and advanced computing.

In the last year, Applied Digital has pursued long-term hyperscale leases, aiming to anchor its revenues with major clients in the AI sector. It is pivoting away from operating its own Cloud Services Business, a move designed to make the company more attractive to large enterprise customers and to potential real estate investment trust (REIT) investors by focusing solely on leasing its infrastructure. A key factor for its future success is the ability to attract new large customers while keeping operating and capital costs under control.

Quarter Highlights: Financial and Operational Developments

The quarter illustrated positive momentum on long-term deals alongside volatile operational results. The main story was the signing of two major 15-year AI data center leases with CoreWeave, a specialist in AI infrastructure. These agreements at the Ellendale, North Dakota campus cover an initial 250 megawatts (MW) of critical IT load, as disclosed in the quarter. and are projected to generate $7 billion in revenue over their term. After the quarter, CoreWeave expanded its commitment to 400 MW, increasing contracted revenue for Applied Digital to approximately $11 billion over 15 years. The roll-out schedule includes a 100 MW facility slated to be operational in Q4 2025, a 150 MW facility scheduled for mid-2026, and a third phase planned for 2027.

However, quarterly GAAP revenue came in well below market forecasts. This was mainly due to moving the Cloud Services Business into "discontinued operations"—revenue from this segment was excluded from continuing operations in accordance with GAAP, reflecting the company’s transition to a focus on AI data center leasing. The year-over-year revenue increase for FY2025 was primarily due to ramping up a single hosting facility to full capacity, offset by a decrease in related party revenue, highlighting dependence on large but narrowly distributed contracts.

Operational costs continued to outpace revenue growth. Selling, general, and administrative expenses in the fiscal fourth quarter of 2025 were $28.1 million, compared to $13.1 million in the same period of 2024, a jump attributed to $9.4 million in higher stock-based compensation, increased personnel, and higher insurance and software costs. Although the cost of revenues rose 33% year over year in Q4 FY2025 (GAAP), cost optimizations related to lower energy prices provided some relief. Adjusted EBITDA turned positive at $1.0 million. Substantial non-cash charges, including a $33.6 million loss on debt conversion and an $85.4 million fair value loss on a debt derivative, resulted in heavy GAAP losses for FY2025.

Strategically, management continued to press forward with the transition away from in-house cloud computing operations. The Cloud Services Business, now formally "held for sale," is under strategic review after management reported that prospective large-scale tenants saw it as a competitive friction point. This structural decision set the groundwork for possible REIT conversion and aligns the core business with long-term, recurring lease revenue rather than volatile service fees.

Business Model, Competitive Risks, and Product Context

Applied Digital’s business relies on large-scale physical infrastructure for two product classes: hosting for cryptocurrency mining and high-density AI facility leasing. The latter segment uses specialized data centers equipped with advanced cooling and power to support processor-heavy tasks, such as those run by “GPUs” (graphics processing units) in artificial intelligence workflows. The company’s new Polaris Forge 1 campus is being developed entirely for high-performance AI and high-density workloads, with a design aimed to scale up to 1 gigawatt over time.

The company’s immediate challenge is heavy reliance on only one or two customers. Both the Data Center Hosting and AI hosting businesses are anchored by single customers under multi-year contracts. This concentration risk means any loss or non-renewal of a top client could have an outsized impact, especially given the substantial debt—totaling $688.2 million as of May 31, 2025—taken on to fund expansion. While the new AI leases provide visibility into revenue, there is not yet clear evidence of broader customer diversification.

Applied Digital operates in a highly competitive market, going up against large and established players with much greater financial resources and more sites, such as Digital Realty, Equinix, and NTT. The company is also exposed to risks from changes in regulations related to energy consumption (especially for crypto mining customers) and potential tightening oversight related to the ethics and operational practices of AI hosting.

Execution on supply chain and logistics is similarly critical. Construction of the new facilities in North Dakota remains on track, with most equipment for the first phase already delivered. Management highlighted timelines for commissioning and powering up the new build, with operations expected to begin generating revenue in Q4 CY2025. Securing timely equipment deliveries and managing project capital expenditures—as outlined by guidance of $30–$50 million per month for major builds—are key to staying ahead of both competition and market demand, according to management commentary during the Q3 FY2025 earnings call.

Looking Forward: Guidance and Risks

Management did not provide quantitative financial guidance for the next quarter or the upcoming fiscal year. Instead, executives emphasized the ramp-up schedule for the new facilities, stating that the first 100 MW building in North Dakota is on pace to be operational in Q4 2025, followed by further expansion in 2026 and 2027. Capital resources appear bolstered, with cash and equivalents at $120.9 million as of May 31, 2025, and another $268.9 million raised through equity and preferred share sales after the period closed.

Investors should pay close attention to the execution of construction, the ability to deliver contracted AI facility capacity, customer diversification, trends in operating expense growth versus revenue, and further developments on the sale or separation of the Cloud Services Business. Customer concentration and heavy leverage remain central risks. Shares remain sensitive to any changes in customer contracts or timing of facility readiness, as well as to shifts in regulation and the competitive landscape.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.