Applied Digital, a data center operator serving AI customers, has seen its stock fall about 50% from a 52-week high of $50.73 reached in May, leaving shares trading near their annual low.
The company builds data centers and leases their compute capacity to AI enterprises. It has signed lease agreements worth $36 billion over the next 15 years, with renewal options that could deliver up to $86 billion over 30 years if exercised.
Those contracts are structured as take-or-pay agreements, requiring tenants to pay specified base rents whether or not they use the reserved computing capacity. The arrangement reduces the risk of revenue loss from underutilization.
Applied Digital also supplies computing capacity directly to hyperscalers, including Microsoft, through ChronoScale, a business it spun off in May while retaining roughly 97% ownership. ChronoScale shares have been volatile since listing but have risen more than 100%.
The share-price decline reflects the cost of building out that infrastructure. As of May 31, the close of its fiscal fourth quarter, Applied Digital carried about $5 billion in debt, up from less than $700 million a year earlier.
The company cannot collect rents on many signed leases until construction of additional data centers is complete. It reported $258.7 million in fiscal fourth-quarter revenue, more than 400% higher than a year earlier, but still a fraction of its contracted backlog. Revenue is projected to reach $1.45 billion in fiscal 2028.
The company faces a shortage of memory chips required by data centers and higher energy costs. The broader memory market has weighed on AI-linked shares, reflected in the recent memory-chip selloff testing the AI rally.
Applied Digital’s price-to-sales ratio stands at about 11.