Applied Digital (APLD) Q2 2026 earnings review
Execution Mode: Liquidity Solved, Hyperscalers Signed
Applied Digital has effectively de-risked its immediate future. Revenue surged 250% YoY to $126.6M, though investors must note that ~58% of this ($73M) is low-margin, one-time 'tenant fit-out' revenue for CoreWeave. The real story is the operational pivot: The first 100 MW building at Polaris Forge 1 is energized and generating lease revenue, a second major investment-grade hyperscaler signed a 200 MW deal, and the balance sheet is fortified with $2.3B in cash. The 'funding cliff' bear thesis is dead.
🐂 Bull Case
With $2.3B in cash and equivalents (up from $121M in May 2025) via private notes and Macquarie equity, APLD has the capital to fund its massive infrastructure build-out without immediate further dilution.
The signing of a second U.S. investment-grade hyperscaler for 200 MW (Polaris Forge 2) proves APLD is not a 'one-trick pony' reliant solely on CoreWeave. Total prospective lease revenue now tops $16 billion.
🐻 Bear Case
While headline revenue grew 250%, Cost of Revenues grew 344%. This is driven by the pass-through nature of fit-out revenue. Gross margins compressed significantly, and the company remains unprofitable on a GAAP basis (-$31.2M net loss).
The weighted average share count exploded from 209M in 25Q2 to 277M in 26Q2 (+32%). While the company is capitalized, existing shareholders have been significantly diluted to get here.
⚖️ Verdict: 🟢
Strong. The company delivered on every major operational promise: energized the first AI facility, diversified the customer base, and secured a fortress balance sheet. The confusing revenue mix (fit-out vs. rent) is a temporary noise in a fundamentally improved thesis.
Key Themes
HPC Segment Finally Generates Lease Revenue
For the first time, the HPC (High-Performance Computing) segment generated material recurring revenue ($12M) alongside the fit-out fees. This confirms the 'Ready-for-Service' status of the first 100 MW building. As fit-out revenue rolls off and is replaced by high-margin lease revenue over the next 2-3 quarters, EBITDA margins should expand rapidly.
Strategic Clean-Up: Cloud Spin-Off
APLD is spinning off its Cloud Services business (GPU rental) to merge with EKSO Bionics, forming 'ChronoScale.' APLD retains ~80% ownership. This removes a capital-intensive, lower-margin business from the balance sheet and positions APLD as a pure-play infrastructure landlord (REIT-like model), which typically commands higher valuation multiples.
Expense Balloon
SG&A expenses jumped 119% YoY to $57.0M. Drivers include a $23.8M increase in stock-based compensation and higher professional fees. While typical for a growth phase, this level of cash burn and dilution requires monitoring to ensure it levels off as construction stabilizes.
Legacy Crypto Hosting Remains Stable
Amid the AI pivot, the legacy Data Center Hosting (crypto) business grew 15% YoY to $41.6M and generated $16.0M in operating profit. This segment provides crucial operating cash flow to support corporate overhead while the AI business ramps.
Other KPIs
Structurally transformed. Up from $120M in May 2025. The company raised $2.35B via private notes and drew $900M+ from Macquarie. This fortress balance sheet removes the existential risk that plagued the stock in FY25.
Accelerating. Up from $26.3M in Q1. However, quality is mixed: $73M is cost-recovery fit-out revenue. Only $12M is high-margin recurring rent. Watch for the mix shift in 26Q3/Q4.
Accelerating. Debt load has quadrupled to fund construction. However, maturities are largely pushed to 2030, providing a 4-year runway for the projects to generate cash flow to service this load.
Guidance
Accelerating. The backlog grew from ~$11B (CoreWeave only) to $16B with the addition of the new 200 MW hyperscaler lease. This represents the long-term contracted value of the portfolio.
Stable. The company confirmed the timeline for the new 200 MW campus. Phased delivery across two buildings begins in 2026, aligning with the capital deployment schedule.
Stable. Management reiterated the 5-year target to exceed $1B in Net Operating Income. Current progress (two campuses, 600 MW leased) suggests they are over halfway to the capacity needed to hit this target.
Key Questions
Margin Profile of Fit-Out Revenue
HPC revenue was $85M with $73M in fit-out. Can you explicitly break down the gross margin contribution of the fit-out revenue vs. the $12M in lease revenue to help model the margin expansion as the mix shifts?
New Hyperscaler Economics
Regarding the new 200 MW lease at Polaris Forge 2: How do the lease economics (pricing per kW, escalation, length) compare to the CoreWeave deal? Is there a 'volume discount' implied?
SG&A Normalization
SG&A more than doubled YoY to $57M, driven by stock comp and professional fees. Is this $57M a new quarterly run rate, or were there significant one-time transaction costs related to the financing and spin-off deals?