Applied Digital Won't Collect Most of Its Rent Until 2029. I'd Wait to Buy the Stock.

On paper, Applied Digital (NASDAQ:APLD) has already sold the next 15 years. The artificial intelligence (AI) data center builder has signed leases covering about 1,410 megawatts (MW) of critical IT load (the power available to tenants' computing equipment) across five campuses. Those contracts add up to about $36 billion over their initial 15-year base terms.

And yet the company generated just $611.3 million of revenue in the fiscal year that ended May 31 -- and posted a $249.2 million net loss attributable to common shareholders.

As of this writing, the growth stock sits near $26, well below the $50.73 it touched over the past year, and the market values the company at about $7.7 billion.

The difference is timing. Applied Digital's leases don't pay until the buildings are finished, powered, and handed over. And only 175 MW of the contracted capacity was live as of the company's late-July update.

Image source: Getty Images.

A $36 billion lease book

The five campuses (three in North Dakota and two in the South) are leased to CoreWeave and two investment-grade hyperscalers. Each lease runs 15 years on a take-or-pay basis, meaning the tenant owes the rent whether or not it uses the space.

Today's business, however, is far smaller than the contracts suggest. Revenue jumped 167% year over year in fiscal 2026, to $611.3 million, but only $99.8 million of that was base rent from the AI campuses. Most of the rest came from crypto mining hosting and from reimbursed work fitting out tenants' buildings. And the net loss widened slightly year over year as overhead and stock-based compensation climbed.

"We believe delivering on time is a genuine differentiator in this industry," CEO Wes Cummins said in the company's fiscal fourth-quarter update. "We brought Polaris Forge 1's first 100 MW online on schedule and have now scaled total live capacity at the campus to 175 MW."

When does the rent arrive?

Applied Digital begins recognizing rental revenue when a property is ready for its intended use and the tenant takes possession. In other words, a signed lease on an unfinished building produces no rental revenue at all.

The annual report even warns that significant construction delays can, in certain circumstances, give tenants the right to terminate.

The company's own schedule of minimum lease payments shows how gradually the money arrives: the leases call for $451 million in fiscal 2027. Fiscal 2028's figure is $1.45 billion, and fiscal 2029's is $2.25 billion. In other words, less than $2 billion of the 15-year, $36 billion total (about 5%) arrives before fiscal 2029. Payments quintuple across those three years as buildings come online, with deliveries phased from Polaris Forge 2's first buildings in calendar 2026 out to the second half of calendar 2028. Once every campus is delivered, the leases call for about $2.3 billion of rent per year.

That schedule, I'd argue, is the heart of the case. Take-or-pay contracts leave little doubt about who owes the rent, so long as the buildings get built. What's still open is the construction itself, and big builds can slip.

The financing isn't cheap

The construction bill, meanwhile, is due now. Applied Digital's capital expenditures came to $2.87 billion in fiscal 2026, up from about $680 million the year before.

It ended fiscal 2026 with $5.0 billion of debt against $4.2 billion of cash, much of it restricted. The subsidiaries' senior secured notes carry rates from 6.75% to 9.25%.

Macquarie Asset Management has also funded $1.8 billion of perpetual preferred equity, with the right to invest up to $4.9 billion more, for the North Dakota campuses. But that money isn't free either, since preferred capital collects ahead of common shareholders.

At about $7.7 billion, the market is paying more than 12 times fiscal 2026 sales -- and over three times the annual rent the finished portfolio is contracted to produce. That valuation arguably bakes in years of smooth construction.

It might all go to plan. Management has delivered on schedule so far, and the leases likely remove most of the demand risk a project like this usually carries.

But most of the buildings don't exist yet, and lenders and preferred holders get paid before common shareholders do. I'd avoid buying shares today. If Applied Digital keeps delivering campuses on schedule (management expects Polaris Forge 2's first buildings to begin coming online in calendar 2026), I would take another look.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.