DISPATCH FROM NORTH DAKOTA --> This week we visited Applied...

Mathew Segiel

DISPATCH FROM NORTH DAKOTA -->

This week we visited Applied Digital's $AP$Applied Digital (APLD.US)$laris Forge 2 site in Harwood, ND and were very impressed by the sheer scale of the operation. Parking lot overflows, school bus shuttles across the campus and an endless sea of hardhats gave us a greater appreciation for what the company has constructed in just ~11 months.

Our day began with a company presentation and Q&A with management, where key topics included 1) the anticipation of higher yields and pricing on upcoming leases, with management guiding to 15-20% higher pricing on new deals, 2) the regulatory, power, and climate advantages of building in North Dakota, where sites may carry greater terminal value than Tier-1 markets given superior ability to scale and customer preference to co-locate training with inference, 3) the ~1.7GW of gross capacity currently being marketed, split between expansions with existing customers and potential new logos, and 4) management's belief that contract structure (SLA terms and caps), not initial headline yields/pricing, will determine realized returns over a 15-20 year lease.

From there we headed to the PF2 site, where we toured several data halls, viewed the backup power generation, and saw the substation under construction. Walking the site and speaking with the Campus Director left us with a few takeaways: 1) the company is prioritizing high-quality equipment from established US partners, and has scaled into a large enough buyer to place purchase orders well ahead of needs, 2) learnings from each data hall are being applied to the next room and future sites, which can accelerate deliveries and lower costs, and 3) the standardized base build creates a repeatable playbook the company can deploy across future developments, with customization limited to the tenant-specific requirements in the data hall.

Our Take: We think the market continues to undervalue the entire BTC to AI pivot cohort, ascribing little terminal value to signed leases and minimal credit to future pipeline, and APLD is a poster child. The company has already contracted 1.4GW of CITL with an expected base term lease value >$35B (up to $86B if all renewals are exercised), all planned for delivery by 2028 and to ~70% IG customers.

With only ~100MW operational today, APLD is in an execution window where construction delay risk may outweigh the upside from new lease announcements. However, walking the site and speaking with the team gave us confidence that the projects are tracking to plan and that management is building something repeatable, a platform that is capable of converting powered land into operating data center capacity at scale in a region where each incremental campus makes the next customer easier to land (management sees a path to 500MW of incremental deliveries annually through 2031). With >1.5GW currently being marketed, we expect proven execution to improve credit terms and free up equity at refinancing, grinding APLD's multiple higher as the company moves from a few individual assets into a compounding platform.

On the topic of rising "NIMBYism" against data centers across the US, APLD's relationship with its local communities stands out. Construction workers on site are earning six-figure incomes on average, materially lifting the surrounding economy through standing up new businesses, and management has been deliberate about reinvesting in the towns it operates in, funding schools, parades and local recreation (pickleball courts). At Ellendale, the tax base is going from ~$400K a year to nearly $4M, enough to fund schools and emergency services at a level the community could not previously contemplate, while drawing back residents who had left the area for work. In a sector where community opposition is a key risk to permitting and expansion, we view this goodwill as a real asset, and is one reason why management sees further runway to scale each of its existing campuses.

More to come in the next monthly.

H/T Griffin MacMaster

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