Xiaomo dismantles Applied (APLD.US): The AI computing power business is making great strides, and the 10 billion dollar financing is facing a real test

The Zhitong Finance App learned that data center operator Applied Digital (APLD.US) recently announced better-than-expected quarterly results, but the market reaction was lackluster. This AI computing power company is deeply rooted in North Dakota in the US. Although the current project is progressing smoothly, it has nearly 10 billion US dollars to build the project, and the tightening of the financing environment has become an important challenge facing the company. The J.P. Morgan Communications Research Team released a report to comprehensively disassemble the company's operations, project progress, and financing pressures and risks.

Quarterly results exceeded expectations, and the business was highly skewed towards high-performance computing power

According to the data, in the first fiscal quarter of fiscal year 2027 (ending August 2026), Applied Digital achieved revenue of US$342 million, with market expectations of only US$124 million; EBITDA was US$64 million, higher than market expectations of US$43 million, and core financial indicators significantly outperformed market estimates. In terms of business structure, the company's business is increasingly focused on high-performance computing (HPC), and the high-performance computing power business already accounts for about 77% of the company's total revenue.

The project under construction has been steadily implemented, and it is planned to start producing more than 600 MW of IT computing power in the next 12 months

The overall construction schedule of the company's key projects is in line with the plan: the APLD project has been fully put into operation; the two major projects, PFORGE and ELNFOR, are also progressing according to plan. According to the company's plan, more than 600 MW of IT computing power will be put into operation within the next 12 months, including 200MW IT for the PFORGE project, 150MW IT for the ELNFOR project, and the remaining 250MW IT from three sites that have not yet completed debt financing.

Among them, the ELNFOR project has variables worth continuing to track: the company has signed a memorandum of understanding, and if a subsidiary under CoreWeave (CRWV.US) receives an investment grade (IG) credit rating, it will transfer the ELN‑04 lease agreement to that subsidiary. The premise of the arrangement is that CoreWeave will provide GPU equipment financing for ELNFOR data centers, but the financing has yet to be implemented this quarter. If the transaction is completed, and ELNFOR can be completed as planned in the second half of 2027, the interest spreads on APLD and ELNFOR bonds are expected to close. Currently, the spread between the two is 64 basis points.

North Dakota has friendly regulations and has become a “safe haven” for computing power construction

Compared to traditional data center centers such as Texas and Virginia, Applied Digital is based in North Dakota, where there is currently almost no regulatory resistance against data centers.

Management said that the state has formed a mature and clear data center approval framework, and enterprises can clearly predict process requirements when carrying out projects; at the same time, projects do not need to be stuck in grid interconnection queues like the Texas Batch Zero project. Of course, there is still a possibility that regulatory policies will change in the future, but the company determined that North Dakota will still be very attractive in 2027-2028.

Moreover, as regulations and reviews of data center development across the US become stricter, the company believes that the asset value of the park that has already been built and put into operation has instead been raised, which is conducive to subsequent lease renewals, and also increases the final value of existing assets.

Increase local electricity security and lay out the Finnish market overseas

To match the power demand of expanding computing power, Applied Digital signed a long-term power purchase agreement (PPA) with independent power producer Base Electron (10% owned by Applied) in October to build a 1.2 GW natural gas power generation facility in North Dakota, which is expected to start supplying electricity in 2030. The facility is designed to provide dedicated power generation capacity for the Polaris Forge 3D campus expansion project. Currently, the company expects to have 3.5 to 4 GW of power generation capacity by the end of 2030.

In addition to being deeply involved in the US, the company took the first step in internationalization: an agreement was reached with Finland this quarter, which is expected to obtain up to 1 GW of electricity capacity. Under the agreement, the company plans to build a large-scale AI park and is in negotiations with hyperscale customers. The park's first batch of 100 MW of electricity will be put into operation in 2028.

The execution of huge contracts in hand has been blocked, and the nearly 10 billion dollar project is in urgent need of financing

Although there are plenty of on-hand order reserves, the company has not announced any new business contracts since the release of the last financial report in July 2026.

At present, the company has signed three new cross-state business contracts with a total contract amount of 20 billion US dollars. The projects are Delta Forge 1 in Louisiana, Delta Forge 2 in Alabama, and Polaris Forge 3 in North Dakota. J.P. Morgan predicts that the tenant is Meta.

According to the central estimate of capital expenditure per MW of computing power, the total construction cost for these three unfunded projects is close to $9.7 billion. Based on an 80% loan cost ratio (LTC), approximately $7.8 billion in debt funding would be required.

Media reported in September that a bank is evaluating investors' interest in a $3.5 billion deal to fund a data center project built by Meta by Applied Digital. Although the report did not mention specific funding arrangements, J.P. Morgan speculates that Applied needs to begin funding its nearly $10 billion project cost as soon as possible to meet its commitment to Meta.

Management said during the performance conference call that the three projects used the same financing plan (i.e. preferred stock superimposed project-level debt financing) and had “actively negotiated with major financial institutions.” Management also mentioned that the company is considering alternatives to high-yield bonds, including exploring innovative solutions in the investment-grade market, such as using tools such as tenant guarantees.

Why has the financing environment become difficult?

At the external level, light market transactions in August were compounded by high overall interest rates, which suppressed the enthusiasm for issuance in the primary market. At the industry level, the high-performance computing power sector is weighted in the J.P. Morgan Chase High Yield Bond Index, rising from 1.07% to 3.55%. Investors' exposure to this sector has increased markedly, and they are more cautious about new supply.

The company plans to refinance high-cost, high-yield project bonds through asset-backed securities ABS or the investment-grade market after the lease is officially effective and construction risks are eliminated. The APLD project has already been put into operation, and the coupon interest rate is too high, which is theoretically suitable for replacement. However, J.P. Morgan pointed out that the company still has a large amount of new debt to be introduced to the market, so debt replacement is not a priority task at this stage.

Bond rating adjustments: Some project bonds downgraded to “neutral”

The report points out that in an environment where data centers are generally facing regulatory resistance, supply chains are tight, and financing is stuck, there are no surprises in Applied Digital's operations this quarter, but the smooth operation itself is already beneficial. The company has proven its ability to complete the construction of APLD large-scale cloud vendor parks on time and on budget, providing a reference for subsequent construction of PFORGE and ELNFOR.

However, the real challenge is also prominent: the company needs to enter the capital market on a large scale to complete the financing of all pipeline projects. In addition to equity financing, the overall financing requirement is about 13 billion US dollars. Since April 2026, APLD and PFORGE bonds have outperformed the high-performance computing power sector by about 200 basis points, making them one of the few successful targets on the high computing power circuit this year, but at the same time, the pressure on the entire corporate group's bond supply cannot be ignored. Based on the above judgment, J.P. Morgan downgraded the rating of the above project bonds from “excess holdings” to “neutral”; however, it maintained the “increase” ratings for parent company entities and ELNFOR project bonds.