Applied Digital (NASDAQ:APLD) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
Full Transcript
Matt, Investor Relations
Disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption Risk Factors in our Annual Report on Form 10-K and our quarterly reports on Form 10-Q. You may access Applied Digital’s SEC filings for free by visiting the SEC website at www.sec.gov. I would also like to remind everyone that the call is being recorded and made available for replay via a link in the Investor Relations section of Applied Digital’s website.
Now I’ll turn the call over to Applied Digital Chairman and CEO Wes Cummins.
Wes Cummins, Founder, CEO and Chairman
Thanks, Matt, and good afternoon everyone. Thank you for joining our fiscal first quarter 2027 earnings conference call. As we begin fiscal 2027, I’d like to provide an update on our vision, our strategy, and most importantly, our execution. Today we have approximately 36 billion in contracted revenue across five campuses, three states, and two very different geographic regions of the country. Our focus is on converting our contracted portfolio into sustainable, profitable growth while continuing to selectively pursue new opportunities across our expansive land and power portfolios.
During the past year, success was primarily measured by aggressively growing our portfolio of campuses and our total contracted value associated with those campuses. Over the near to medium term, we expect to continue expanding our existing campuses and selectively adding new locations with a strong focus on execution and bringing contracted capacity online for our customers. Over the next 12 months we expect to place over 600 megawatts into service versus the 250 megawatts over the past 12 months.
Let me turn to our vision and strategy which remains unchanged. Our goal is to become the category leader in design, build, deployment, and operation of our purpose-built AI factories. Achieving that requires us to balance several things well: selecting the right customers, matching those customers with a funding strategy that optimizes our financial returns, and executing consistently on our builds. We believe we are well positioned to do all three.
We have a proprietary and proven data center design that has gained acceptance by the leading top-tier hyperscalers. We have a well-honed supply chain, deep energy partnerships, and a demonstrated ability to deliver on our lease commitments. Importantly, our data center design is different from many of our competitors. Some competitors’ facilities are designed primarily around the typical five- to six-year life cycle of a GPU. We’ve taken a different approach and are building for the long term with 30-plus-year horizons.
We believe our AI factories are designed to be substantially more adaptable as compute architectures, network configurations, and electrical and mechanical requirements evolve over time. Our design and our investment strategy are based on a set of core principles intended to extend the useful life of our AI factories and campuses well beyond any single generation of compute architecture. That matters because we believe the customers signing long-term leases with us expect these facilities to continue serving their needs well beyond the initial lease term.
As a result, we believe our design and build strategy together with our franchise model are highly differentiated and will generate outsized returns for our stockholders over the long term. Our primary focus remains straightforward: build large, sustainable AI factory campuses and sign durable, high-quality long-term contracts. We target take-or-pay contracts of at least 15 years with proven tier 1 investment-grade hyperscalers that are leaders in the AI industry and are well positioned to convert their investment into sustainable and profitable growth.
We view our customers’ ability to convert their AI investments into durable and sustainable earnings as an important metric as we make decisions on who we will build for. This is a relatively narrow group of customers who represent enormous demand and significant long-term spending potential. These customers have told us that they value our quality of design, the quality of our builds, and the strength of our world-class team. In addition to signing new contracts, one of our priorities is to continue expanding our existing campuses.
We also see opportunity to capture premium pricing as demand grows and we realize the economies of scale inherent in large AI campus developments. We have continued to make progress on expansion opportunities with our existing customers while also advancing discussions around additional campuses. We currently expect approximately 250 megawatts of expansion leases to be executed by calendar year end at materially higher pricing compared to prior leases.
As we continue to expand our existing campuses and seek to lock in premium pricing, we believe these campuses contain significant and underappreciated embedded value. We expect that value to grow over time as we execute against our contract portfolio and focus on delivering outsized long-term returns to our stockholders. I’d like now to turn to our execution in North Dakota, where we are currently building multiple AI factories across three campuses.
North Dakota is our largest operating region and remains core to our strategy. We have repeatedly said its low cost of power, abundant energy resources, low population density, and favorable climate make it one of the most compelling regions in North America for large-scale AI factory development. We expect additional tier 1 hyperscalers to recognize those advantages over time. It is also the place where we have made the majority of our investments to date, both in the campuses we are building and in the communities with which we have partnered.
Power remains the single largest gating factor in our industry, and North Dakota is one of the few regions where we believe new generation can be added at meaningful scale. Speaking to that scale, we recently took a significant step in expanding our power position in North Dakota by entering into a long-term power purchase agreement with Base Electron, an independent power producer in which we hold an approximate 10% equity stake. The agreement covers an approximately 1,200-megawatt natural gas facility that Base Electron is developing in central North Dakota adjacent to our Polaris Forge 3 campus, with deliveries expected to begin in 2030.
This is exactly the kind of outcome our model is built to produce. While many operators are waiting in interconnection queues for capacity they do not control, we are contracting for dedicated generation at the scale of our campuses with an agreement that can follow our tenants and a timeline aligned with our future development needs. We believe this dedicated supply substantially strengthens our ability to expand our North Dakota campus on our own timeline rather than the grid’s, and gives us greater visibility into the power resources that will support our future growth in the region.
To put the pace of our execution in North Dakota in perspective, we signed our first lease with CoreWeave in May of 2025 for our first two buildings at Polaris Forge 1, the first of which was then under construction by the end of calendar year 2025. The first building was fully operational, capable of supporting more than 40,000 liquid-cooled NVIDIA GB300s. The second building, which broke ground in summer 2025, became operational approximately one year later.
As of today, we have achieved full ready for service, or RFS, across our first two buildings at our Polaris Forge 1 campus, with our third building progressing on schedule. The operational buildings encompass 10 data halls and are supported by 250 megawatts of critical IT load. This represents a 150% increase in delivered capacity at Ellendale alone. We believe we are substantially ahead of our closest competitors in delivered capacity, and with the expected initial operation of our Harwood, North Dakota campus, we anticipate having 300 megawatts of total critical IT online across North Dakota by the end of this calendar year.
We believe this level of delivered capacity places us among the leading companies in our category, regardless of geography in the United States. Beyond North Dakota, we are developing campuses with substantial expansion potential in Louisiana and Alabama. These markets offer compelling characteristics, including access to power and strong state and local support for the build-out of national AI capacity. We view the presence of other top-tier hyperscalers developing large-scale AI campuses in these regions as further reinforcing their strategic importance.
Our development activity in Louisiana and Alabama continues to progress, and we remain encouraged by the scale of customer demand across the region. We expect revenue contribution from this region of the country to begin in the first half of calendar year 2027. We recently took our first steps outside the United States. While our focus remains firmly on executing our domestic projects, we believe select European markets may provide attractive opportunities to leverage our expertise and extend our platform over time as we continue to build Applied Digital into a category leader.
As part of that early look, we signed an agreement for up to 1 gigawatt of potential power capacity in Finland. We view this as a measured first step. The agreement provides meaningful long-term potential while limiting our initial exposure and protecting downside risk, while our near-term execution priorities remain centered on the United States. Turning to our data center hosting business, our 286 megawatts of capacity for Bitcoin mining across our two North Dakota sites continues to operate efficiently and provide steady, high-margin revenue with minimal ongoing capital investment.
And now to Chronoscale, in which we have an approximately 96% ownership stake. NEO Clouds continue to represent one of the fastest growing segments in this market. NVIDIA expects NEO Clouds to exit this year with 8 gigawatts of installed capacity, up from 3 gigawatts at the end of 2025. During the quarter, Chronoscale announced plans with Microsoft for a 50-megawatt AI compute deployment in North America featuring NVIDIA GB300 NVL72 systems. This deployment is expected to significantly expand Chronoscale’s existing business with a tier 1 investment-grade customer and represents another important step in scaling the platform.
With recent new contracts, Chronoscale is on track to reach 1 billion of ARR in 2027, and momentum for additional contracts continues to build. With that, I’ll turn the call over to our CFO, Sedal Momond, for a detailed review of the financials.
Sedol
Thank you, Wes, and good afternoon, everybody. This quarter we completed the financing of our first campus. Earlier this year we had only one remaining tranche of debt to place for the final 150 megawatt building at Polaris Forge 1. In June, as we discussed on our last call, we closed that tranche, a $1.59 billion offering of 7% senior secured notes due 2031 issued at par. With the proceeds of the offering, we have funded construction of the third HPC building at Polaris Forge 1 and have repaid the $300 million bridge facility we put in place in May.
With that, the full 400 megawatts of the CoreWeave campus at Polaris Forge 1 and the 200 megawatts of contracted capacity at Polaris Forge 2 are now fully funded. The pricing of that deal is worth pointing out. Our first Polaris Forge 1 related notes placed last year carry a 9.25% coupon. This tranche priced at 7%. We believe the pricing reflects the credit enhancements we secured with CoreWeave earlier this year and growing investor confidence in our platform.
We are earning that confidence by executing and delivering our buildings on track and on budget, and we expect the first building of Polaris Forge 2 to similarly be on track and on budget. This success supports market confidence in our ability to execute. It drives us to reach our previously stated goal to keep bringing our cost of capital down, first at the project level and over time by refinancing operating buildings into lower-cost markets such as ABS.
We also added flexibility at the corporate level. In June we upsized a revolving credit facility to $430 million of commitments with an additional $120 million accordion remaining available. Looking ahead, the next campuses we need to finance are Polaris Forge 3, Delta Forge 1 and Delta Forge 2. All of these are leased to the same Tier 1 investment-grade hyperscaler under 15-year take-or-pay leases. We believe this fact changes the financing conversations of potential creditors.
Recall Tier 1 investment-grade tenants open access to a deeper pool of capital, which we believe supports more attractive terms. We are following the same framework: preferred equity from Macquarie Asset Management followed by project-level debt, which allows Applied Digital shareholders to retain a majority ownership stake in each site. We are already in active discussions with leading lending institutions and, given the credit quality of this customer, we have a high level of confidence in our ability to fund these campuses at favorable rates and terms.
Now let’s turn to the quarter. As a reminder, Chronoscale is included in our GAAP consolidated results but is excluded from our non-GAAP financial measures. We reported total revenue of $341.9 million, up 322% from $80.9 million in the prior-year quarter. Our HPC hosting business generated $262.6 million of revenue consisting of $65.8 million of base rent, $183.5 million of tenant fit-out services and $13.3 million of tenant recoveries. Our data center hosting segment, which operates our two Bitcoin hosting sites, generated $37.8 million in revenue, in line with the prior-year quarter.
We continue to be very pleased with this business, which generated $13.3 million of operating profit in a single quarter on approximately $111.9 million of segment assets. Segment operating profit this quarter more than doubled from $6 million in the prior quarter driven by favorable power pricing. Chronoscale’s revenue was $41.5 million this quarter, including approximately $23 million of GPU hardware sales. Services and other cost of revenues was $245.7 million, primarily consisting of $176.1 million in tenant fit-out services performed within our HPC hosting business, $22.4 million associated with Chronoscale’s GPU hardware sales, $19.8 million in energy cost and $17.6 million in depreciation and amortization. Data center rental and other cost of revenues was $43.9 million, primarily due to $22.4 million in depreciation and amortization expense on our operational AI factories and at our Polaris Forge 1 campus, $13.3 million in expenses which are reimbursable as tenant recoveries and $7.8 million in personnel and other operating costs supporting our facilities. SG&A was $114.7 million this quarter.
This was primarily due to $65.4 million in stock-based comp, $16 million of professional services mainly related to transactions, $15.6 million of personnel expenses and $4.8 million of lease expenses. One item worth calling out in the quarter: our stock-based compensation expense included $41.3 million tied to one-time performance stock units. We also recorded $67.5 million of a non-cash loss from the change in fair value of our Babcock & Wilcox warrants and the common stock investment.
Both are marked to market every quarter as B&W’s stock price changes. Net loss from continuing operations attributable to common stockholders was $221 million, or $0.76 per share. Adjusted net loss was $4.1 million, or $0.01 per diluted share. Adjusted EBITDA was $64.4 million, up from $500,000 in the prior-year quarter. Net operating income, or NOI, which is exclusive to our HPC hosting business, was $58.8 million, representing an 89% margin. From a balance sheet perspective, we believe we remain well positioned.
We ended the quarter with approximately $2.9 billion in cash and cash equivalents, plus $0.7 billion of restricted cash, against approximately $6.4 billion of debt. Note more than 80% of that principal does not come due until fiscal 2031 or later. Stockholders’ equity is approximately $1.6 billion. Our goal remains to maintain one of the strongest balance sheets in the industry through the majority of the construction phase, and we’ll execute as such.
With that, I’ll turn the call back over to Wes for closing remarks. Thank you.
Wes Cummins, Founder, CEO and Chairman
Thank you, Sedol. Before we open the call for questions, I want to close on something that comes up in nearly every investor conversation we have today: the growing scrutiny around data center development. Across the country, we are seeing more local moratoriums, tighter zoning requirements, longer permitting timelines and greater community resistance in certain markets. Some may view this as a risk to our industry. We see it differently. We believe it actually increases the strategic value of our campuses that are already powered, operating and supported by their communities.
We think the reason is straightforward. At our campuses, once they are established, we believe much of the hardest work has already been done. The land is controlled, power and interconnection are in place, permits have been secured, fiber, workforce and local supply chains have been established. And perhaps most importantly to us, the community knows who we are and sees how we operate. This is why we think expanding at existing campuses is materially different than starting from scratch in a new market.
We are already seeing this dynamic across our portfolio. Customers tell us they want additional capacity in places where they have confidence it can actually be delivered. As new data center development becomes more difficult in certain markets, we believe the scarcity value of established, powered and community-supported campuses increases. We think that dynamic creates meaningful barriers to entry and can support stronger economics on expansions and renewals and, over the long term, higher terminal values for our assets.
Put simply, our view is that every new restriction elsewhere makes what we already own harder to replicate and more valuable. This is also important when we think about the long-term value of these assets. Our leases have 15-year base terms, but the land, power, interconnection and community support behind these campuses have the capacity to last far longer than any single lease. When a base term ends, we see that a tenant with tens of thousands of GPUs deployed in a powered, liquid-cooled campus faces a simple choice: renew with us or try finding comparable power and approval somewhere else.
In a market where new sites are becoming increasingly difficult to approve, we believe that makes renewals more likely, supports stronger renewal pricing and allows our tenants to continue refreshing their technology within the same facility for decades. This is why we believe in the durability of our leases and that the terminal value of these campuses is meaningfully higher than a traditional real estate model would have said. We also believe that the value should continue to grow as new supply becomes harder to build.
And local leaders have told us the reason our communities want us to expand is because we have worked hard to earn their trust. Our approach has always been simple: do it the right way. In North Dakota, MDU’s customers have saved about $45 million since our Ellendale project began because we use excess grid capacity and help spread fixed costs across more load. In Harwood, we paid for over $100 million of substation and grid upgrades ourselves, which benefit the entire community, and our model already meets the Ratepayer Protection Pledge that Governor Armstrong joined alongside 21 other governors.
Local leaders have also shared with us that the positive economic impact on these communities has been significant, and it’s drawing national attention, including coverage on Fox Business and the All-In Podcast. Ellendale is a great example. Since we began our partnership with the community, local tax revenue has expanded roughly tenfold, from approximately $400,000 a year to nearly $4 million. These tax dollars are helping fund schools, infrastructure and emergency services.
Construction workers on our sites earn six-figure incomes on average, and many of those dollars stay in the local economy. We were honored that Mid-America Economic Development Council recently named Polaris Forge 1 its Project of the Year, recognizing the campus for its economic impact, community investment, partnerships and technological innovation. That award belongs as much to the Ellendale community as it does to us, and we are incredibly grateful to everyone who continues to make Polaris Forge 1 possible.
We also invest directly in our local communities through Applied Digital Cares. We recently committed $350,000 across five organizations in Oliver County, home to Polaris Forge 3. That includes funding the new sheriff’s deputy, a new LifePak for the county ambulance, repairs to two fire trucks, computers so every student in grades seven through twelve at Center-Stanton has a device, and repairs to the community center and pool in Center. As Governor Armstrong put it, North Dakota wins when companies like Applied Digital choose to be more than an employer.
We don’t just build in communities, we build with them. And that is why they are welcoming us back to grow and why we believe each of our campuses has significant embedded value that will continue to build over time. In closing, we believe we’re in the right place at the right time and doing this the right way. More than ever, we’re in control of our own destiny. Across the full stack, we own the land. We design, we build and operate the AI factories.
Through Chronoscale, we reach all the way to GPU compute, and through partners like Base Electron, we have visibility into the power that feeds it all. If demand continues on its current path and we continue to execute and deliver for our customers and our communities as we’ve been doing, we believe we have the ability to grow our operating portfolio to 3.5 to 4 gigawatts by the end of calendar year 2030. With that, operator, we’re happy to open the call for questions.
OPERATOR
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality if you are muted locally. Please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question is from the line of Mike Grondle with Northland Securities.
Mike, your line is open. Please go ahead.
Mike Grondle, Analyst at Northland Securities
Hey guys. Thank you. Applied Digital clearly has a first-mover advantage in North Dakota. Can you talk a little bit about the perception of North Dakota as a market and the receptivity you’re seeing from hyperscalers?
Wes Cummins, Founder, CEO and Chairman
Sure, Mike, thanks for the question. So what we’re seeing in North Dakota, obviously we have three customers there ourselves already. We’re aware of a self-build project, roughly 1 GW self-build project from one of the Tier 1 hyperscalers in the state as well. And we’ve been speed that that is outside of the ones that we already have in the state. And we’re having multiple conversations with other of the Tier 1 hyperscalers for additional capacity in the state of North Dakota.
So the, the answer is I think all of them will eventually be there. And that’s a state that has one of the most attractive things about the state beyond the power and the climate and, you know, the population density is they have a framework for how data centers are treated in the state and so everyone knows exactly what to expect as you go through a process in that state. And as long as you do the development the right way, it’s an extraordinarily attractive state to be in.
And I think it’s just going to become more so over the remainder of this year. And 27 and 28.
Mike Grondle, Analyst at Northland Securities
Got it. And then maybe for Sedol, the bond market has been challenging to say the least. Can you talk about current options you’re seeing for investment grade hyperscaler debt funding?
Sedol
Yeah, thanks for the question, Mike. And it’s a great question. As you can recall, we completed the Polaris Forge 2 and the Polaris Forge 1 financings which you could argue are not the same credit quality. Great customers, they execute great, great tenants to have so when you think about the go forward with Polaris Forge 3 and Delta Forge 1 and 2, given that it is in high investment grade hyperscaler, there is multiple options beyond the high yield bond market which we have liked and we’ve been an issuer in with the past projects.
So for instance the project finance market is well open for high investment grade offtakes as well as there’s some new innovations within the investment grade bond market. So what we have seen, there’s flexibility amongst various products that we can tap. Obviously we weigh those and find a mix that works for our profile. But what we are focused on in a rate environment that can move around 50 to 100 basis points. One, we don’t underwrite leases where 100 basis point move would impact our economics greatly.
But then two, we focus then on terms where we can refinance in a year or two years with minimal penalties. So once that construction risk, which generally is anywhere from 25 to 100 basis points of construction risk premium on a debt instrument, once we go past the construction phase, we have the flexibility to, to lower our costs relatively quick into a more permanent financing. That is our focus. We’re nimble and it’s a great thing having a high investment grade hyperscaler with multiple options to run at.
Mike Grondle, Analyst at Northland Securities
That’s good to hear. Hey, thanks guys.
Wes Cummins, Founder, CEO and Chairman
Thanks, Mike.
OPERATOR
Your next question comes from the line of Nick Giles with B. Riley Securities. Nick, your line is open. Please go ahead.
Nick Giles, Analyst at B. Riley Securities
Yeah, thanks operator. Hi guys. Congrats on the recent execution. I just wanted to ask about this Finland announcement. I think in the release you highlighted limited initial exposure and I was just hoping you could expand on that point. What kind of options are embedded in the current agreement and how you kind of see, you know, the commercial side of that, of that site progressing. Thanks.
Wes Cummins, Founder, CEO and Chairman
Sure, Nick, thanks. So for the site, we purchased the site and then we have the option. So the initial power of that site comes in 2028 and then additional power, which is typical of almost any site that’s going to scale to a gigawatt, there’s breakpoints where they’ll get approvals for additional power adds. There’s pretty good line of sight to that. But then there would be additional payments at that point. But there’s an off ramp for us prior to those additional payments.
So it’s a pretty minimal amount for us to have this kind of exposure in a market that we, we think has become pretty attractive as far as the European market goes. And, and we’ve, you know, we’ve spent the last, I don’t know, 12 months looking into that market and we’ve looked at probably 30 to 40 different sites and we landed on this one. We think it’s a good site and it’s kind of coincided nicely to a point where our existing and the other potential customers that we talked to started asking more in the last four months about European capacity.
So those things kind of go pretty well together, but it gives us a lot of optionality to the upside with pretty minimal financial risk.
Nick Giles, Analyst at B. Riley Securities
Got it. No, thanks for that, Wes. And maybe just switching gears, in your prepared remarks, I think you really highlighted the longevity of these data center campuses today. And I heard it as kind of a change in tone or maybe highlighting that more so than you have in the past. So I was just wondering if there’s, you know, what were the genesis of those comments. I mean, obviously GPU refresh cycles continue to be part of the discussion here, but yeah, anything that you’d highlight from that perspective I’d appreciate.
Wes Cummins, Founder, CEO and Chairman
Sure, Nick. So it’s a couple of things we’ve talked, you know, for since we started the design that we use today. I call it our fourth generation data center design. With this design we made it extraordinarily flexible with all of the learnings we had gathered through the processes we went through with all of the hyperscalers. So one, it’s flexible enough to work for any of the hyperscalers, but two, we made it flexible to future proof it as much as possible.
And some of that comes into how we do the electrical, some of it in the cooling. A big part of it is the amount of space that we put inside of the data hall. So that, you know, the trend is for higher power densities and that’s the foreseeable future. But if it goes to much lower power densities, we have the space inside of the facility to accommodate that as well. So we just built maximum flexibility. We’ve talked about this for a few years now, but what I’m seeing in the market is a lot of things happening that are just hyper focused on how quickly something can come online and doing close to unnatural acts, I would say, to just put capacity online as quickly as possible. And while I’m not saying that’s a good or a bad business strategy, I just want to differentiate from what we’re doing, which is a much more longer-term view of how we build the data center so that they’re very long-term assets. You can never fully know what the future brings, but that’s the view that we have as a company. That’s how we design them. That’s how we design them from a redundancy from both a power and cooling perspective.
Because we could build a slightly cheaper product. We do have to make sure that we can operate this product for at least 15 years on our current leases within the SLAs, but we want to operate them longer than that. But it’s just really more insight into kind of the thought process and the longer-term thinking behind our data center design and build and the operations versus some of the other things that we’re seeing just overall going on in the market.
Nick Giles, Analyst at B. Riley Securities
Makes sense. Appreciate the update, guys.
OPERATOR
Your next question is from the line of Derek Whitfield with Texas Capital. Eric, your line is now open. Please go ahead.
Derek Whitfield, Analyst at Texas Capital
Good afternoon and congrats on your continued commercial and execution progress. Thanks Wes. I wanted to start with the 1.3 gigawatts of US capacity that you’re currently marketing. During the last call you noted you’re experiencing a healthy market at present and would expect base rates to improve on a risk-adjusted basis. How would you characterize what you’re seeing in the market today? Since really the last call? Seemingly everything that’s happening from a regulatory moratorium perspective is playing to your benefit.
But would just love your perspective and color on that.
Wes Cummins, Founder, CEO and Chairman
Sure. So from a demand perspective in the market we’re seeing. No, no, I wouldn’t say big change either way. I mean it feels like we’re at max. I’ve thought of that for, you know, kind of the last two years and it continues to notch up, but demand remains extremely robust for, you know, right now. People are still pushing for things they can get in 2027. Really almost everything in 27 should be fairly contracted at this point. We start moving into 28 and 29.
We have stuff that’s contracted into 28, but we’re seeing a lot of demand for that as well. And really it locations like we keep pointing to North Dakota, but Louisiana is a great market for us as well and so is Alabama. We’ve had a great experience there with the community and the certainty of being able to continue to get the permits of existing power that we have in campus, the supply chain for us to continue to execute. I would just reiterate those comments about we fully expect to do some lease expansion and new campuses at materially higher rates versus what we signed our last contracts for in the first half of 2026.
Derek Whitfield, Analyst at Texas Capital
Very good. And then for my follow-up, I wanted to come back to Finland. While I realize you’re early in the process with the emerging European AI market, I wanted to ask if you have a feel on how build costs might compare versus the US as you think about the labor, building and equipment supplies.
Wes Cummins, Founder, CEO and Chairman
Yeah, so we’ve actually went through that exercise and the build cost is we expect it to be very similar on a dollars basis versus euro. And so, and by that I mean, you know, if we converted the euros back, it would be roughly the same dollars what I would expect. There is a more elongated delivery timeline in Europe, just kind of how it works versus what we do here in the U.S. but the goal is to replicate, you know, the same thing from the supply chain and design and build perspective in the markets when we enter Europe versus here. But we’ve done that work and expect a very similar cost.
Derek Whitfield, Analyst at Texas Capital
Terrific. Great update, guys. Thanks.
OPERATOR
Your next question comes from the line of Rob Brown with Lake Street Capital Markets. Rob, your line is now open. Please go ahead.
Rob Brown, Analyst at Lake Street Capital Markets
Good afternoon. Congratulations on all the progress. Just talk a little bit on North Dakota and the ability to expand there and how Base Electron fits into that. Given your BPA, how does that sort of start to enable expansion there and what years are most affected by that?
Wes Cummins, Founder, CEO and Chairman
Sure. So we start to think about 2030, Rob, primarily on Base Electron. So Base Electron’s building the 1.2 gigawatts in Center. Expect Base Electron to build a significant amount of capacity on the eastern side of the state as well. Will help campus expansion over in the Harwood campus and then potentially in the middle part of the state around Jamestown. So there’s a new WBI pipeline — WBI owned by MDU — that they approved and are moving forward with.
It’s been in the works for years. And so we will be an offtaker of gas at Center and at Harwood for certain and possibly in Jamestown. But the way we have worked that with the gas pipeline is to have almost unlimited capacity for expansion in Center. It’s going to be the closest location to the beginning of the pipeline. And then these pipelines typically taper the further they go out. So to have really big expansion capability at Center — this will all be front of the meter, grid connected — but also expand at different locations across the state.
From an equipment perspective, we’re looking at procured equipment that’s roughly 2.4 to 2.5 gigawatts of generation capacity there already. But we expect it to go significantly larger given the demand that we’re seeing in the future there in North Dakota.
Rob Brown, Analyst at Lake Street Capital Markets
Great, thank you. And then just wanted to follow up on the supply chain work you’ve done. You’ve executed very well on plan. How have you mitigated any supply chain constraints or what do you think in terms of supply chain?
Wes Cummins, Founder, CEO and Chairman
Sure. I mean supply chain I think is tight across the industry and some components more so than others. The biggest — we’ve talked about this before from a supply chain perspective — the biggest thing we did was almost two years ago lock in key components in the supply chain with certain of our suppliers. And in some of those instances we actually purchased full factory capacity output from certain factories for, I believe, a four-year time frame to make sure that we had those key components locked in.
So that’s been a big help to us. We’re pushing to upsize that amount that we can take, because we think as we go out into ’27 and ’28 and ’29, we’re going to need more supply chain to continue to build to the demand that we’re seeing in the marketplace. But that was the key piece for us — putting those key relationships in place quite some time ago to make sure that we’re locked into our places in the supply chain for key components.
Rob Brown, Analyst at Lake Street Capital Markets
Thank you.
Wes Cummins, Founder, CEO and Chairman
I’ll turn it over.
Matt, Investor Relations
Thanks, Robert.
OPERATOR
Your next question is from the line of George Sutton with Craig-Hallum. George, your line is now open. Please go ahead.
George Sutton, Analyst at Craig-Hallum
Thank you. Wes, you used the term selective when you were talking about the future build. I want to make sure I understand the term selective you’re referring to. I think you’re referring to the quality of folks that you’ll work with versus the amount of capacity that you’ll ultimately be able to build. Is that a fair conclusion?
Wes Cummins, Founder, CEO and Chairman
Yeah, that’s right, George. The company today is in a different place versus what it was a year ago and we have a limited amount of capacity to build, and so we’re being more selective with the customers that we’ll build for — and you’re right on the credit quality aspect of that.
George Sutton, Analyst at Craig-Hallum
So relative to the 250 megawatts of expansions, you basically define them as likely coming at premium pricing. Can you just give us a sense of how you’re defining premium pricing? How broad is that statement versus just the base rent? What might else be involved?
Wes Cummins, Founder, CEO and Chairman
Well, what we’re pushing for on that, George — and not to get into too much detail, but we’ve talked about this before — which is potentially longer duration and significantly higher lease rates. Don’t want to pin that, but you can think of definitely north of 15% plus increases on the lease rate, but also could include longer duration on the leases. That’s how we’re defining that.
George Sutton, Analyst at Craig-Hallum
All right, perfect. Thanks, guys.
Wes Cummins, Founder, CEO and Chairman
Thanks, George.
OPERATOR
Your next question comes from the line of Darren Aftahi with Roth MKM. Darren, your line is open. Please go ahead.
Darren Aftahi, Analyst at Roth MKM
Yeah, thanks guys for taking the questions. Congrats on the progress. Just on Finland, I had a couple points of clarification I wanted to get answered. So is there any way, Wes, you can elaborate on how much power initially is going to be at the site? Second point, what kind of community or governmental risk is there in that region, either kind of near term or longer term? And then lastly, was the site sort of procured on an absolute basis, or is this sort of procured with a specific customer or customer two in mind?
Wes Cummins, Founder, CEO and Chairman
Sure. So we view the location that we found in Finland — it felt a lot like the communities that we build in in North Dakota. So there’s a really positive receptivity from a local level on the community level. The country as a whole has been fairly receptive to data centers. So we really focused on that to make this decision on the site, plus the land availability and the fiber. This site happens to be about 30 km from a self-build of one of the large hyperscalers.
And then as far as the staging of the power, the first 100 megawatts is available in 2028 and then it continues to ramp up through 2031 to the full gigawatt.
OPERATOR
Your next question comes from the line of John Todaro with Needham & Company. John, your line is open. Please go ahead.
John Todaro, Analyst at Needham & Company
Hey, thanks for taking my question. Congrats. As we look up to the 4 gigawatts or so by year-end 2030, I guess just what steps do you need to take to ensure you kind of get there? How much is reliant on Base Electron? And then also in Europe, too — it seems like some of that’s going to come a little bit later, 2031 as you said. So is there other sites in Europe that you need to get to as well?
Wes Cummins, Founder, CEO and Chairman
Yeah. So thanks, John. And I’ll just clarify — went right to the 4 gigawatts. It was 3 1/2 to 4 gigawatts that we talked about by the end of 2030. So that’s really from a power perspective. We have power in the power pipeline. Some of that includes the additional capacity from Base Electron that comes on in 2030. But from a power perspective, we believe we have that in the pipeline. This was really an exercise around how much more can we ramp up our build and delivery.
And if you kind of work through the math for us internally, if you want to get to the high end of that number, that really has us delivering about 1 gigawatt per year in ’29 and ’30. Right? So if you take a bridge to the end of calendar year ’28, getting to around 2 gigawatts, we as a company think that that’s kind of the level we can ramp our construction and delivery up to. So it’s really those two things combined, but much more so on the ability and capacity to do construction and deliver for customers.
John Todaro, Analyst at Needham & Company
Okay, understood, that’s helpful. And then a follow up just on Chronoscale signed to 50 megawatt — obviously it seems like it could start ramping quite a bit from here. Just wondering, as we look out a few years, could we almost expect Chronoscale to be at 400 megawatts or so in Applied sites? Almost like what CoreWeave did, or less? I’m just curious about Chronoscale — the potential customer down the line if they ramp.
Wes Cummins, Founder, CEO and Chairman
Yeah, thanks for that question. That’s a great question. So when we look at that right now — and you’ll see over the coming month or so — the strategy we’re using to secure data center capacity for Chronoscale is outside of the large-scale Applied Digital sites. Those sites we contract to what we have said, which is tier-one, investment-grade hyperscalers. The ability to secure other capacity — we have found a nice strategy for securing more near-term grid capacity that isn’t at that scale at a single location, but at multiple locations.
I think you could see Chronoscale moving up to multiple hundreds of megawatts in capacity online outside the core Applied Digital data center builds over ’27 and ’28. But I want to bifurcate this where it is two separate strategies: Applied Digital’s strategy remains the same — build for high-quality tenants at large scale — and then we’re using our knowledge base to help Chronoscale secure capacity at sites that are more like, you see the first Microsoft side of 50 megawatts, that are kind of 50 to 100 megawatt sites that have been passed over because they don’t scale to the gigawatt size or the multi-hundred megawatt sites.
But there’s a lot of those around the country that are grid-tied that we think we can help them bring online over the next two or three years — a significant amount actually in 2027. So that’s really it. I appreciate you letting me make that clarification around the strategy.
John Todaro, Analyst at Needham & Company
Yeah, sounds great.
Matt, Investor Relations
Thank you, Wes.
Wes Cummins, Founder, CEO and Chairman
Appreciate it. Thanks, John.
OPERATOR
Your next question comes from the line of Michael Donovan with Compass Point. Michael, your line is open. Please go ahead.
Michael Donovan, Analyst at Compass Point
Hi guys. Thanks for taking my question. Is it fair to assume your existing Macquarie relationship would extend to Finland?
Edward Pendarvis, Vice President – Site Strategy & Development
So — CoreWeave has been… I couldn’t have asked for a better — Macquarie. Macquarie. I thought you said CoreWeave. I was going to talk about the partnership there. Macquarie is North America. That partnership is in North America. Not saying we couldn’t have something similar, but the current agreement we have is just North America.
Michael Donovan, Analyst at Compass Point
And if you had anything interesting on CoreWeave, I will not stop you there. But…
Wes Cummins, Founder, CEO and Chairman
Good question.
Michael Donovan, Analyst at Compass Point
That’s all.
Wes Cummins, Founder, CEO and Chairman
That’s what I have for that. Excellent.
Michael Donovan, Analyst at Compass Point
And then to follow up on Nick’s question, as inference becomes a larger share of customer workloads, are you seeing changes in the mix of GPU, CPU, storage requirements? And if so, are any of those changes contributing to the premium lease rates that you mentioned or are expecting?
Wes Cummins, Founder, CEO and Chairman
So, I’ll tell you where we’re seeing a change. We’re seeing a change over the past 18 months on the tenant fit-out, or the technical fit-out — TFO. And what we’re seeing — because we execute that in almost, actually every lease that we have — we execute that — the TFO is becoming much more flexible, is what I would say. So if you rolled back a year ago, or especially 18 months ago, the TFO — we would know exactly what was going into our data center based on the TFO.
And now we can’t really tell, and the TFO has become a larger dollar amount for our customers. But I think they’re building in a significant amount of flexibility inside the facilities to be able to accommodate whatever workloads they want to deploy. We’d always talk about GPU, TPU, but I think it’s also in the amount of CPU mix, the storage, all of those pieces, network topology. But that’s really where we’re seeing that.
Michael Donovan, Analyst at Compass Point
Appreciate that. And then one more if I may. You mentioned economies of scale for your current builds. Are there any circumstances where you would consider smaller modular buildouts?
Wes Cummins, Founder, CEO and Chairman
I think that’s a great place for Chronoscale. Now, just to clarify on that, are you talking about the containerized solutions that people are talking about for edge compute, or just like a 20, 50, 100 megawatt containerized solution?
Michael Donovan, Analyst at Compass Point
Yeah, more in line with 20 to 50. Not so much containerized ones or smaller prefab.
Wes Cummins, Founder, CEO and Chairman
We’re looking at those. That’s one of the ways we’re securing data center capacity at Chronoscale — those types of modular builds on a smaller scale.
Michael Donovan, Analyst at Compass Point
Appreciate that, and congrats on the execution.
OPERATOR
This concludes our Q and A. I will now turn the call back to Wes Cummins for closing remarks.
Wes Cummins, Founder, CEO and Chairman
Thanks everyone, for joining our call, and we’ll look forward to speaking to you again in January.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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