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APLD's Strong Results: Is the HPC Hosting Market Accelerating?

APLD's Earnings Highlights

$APPLIED DIGITAL CORP(APLD)$  's Q2 FY26 revenue surged to $126.6 million, a remarkable 250% YoY increase, beating market expectations. A significant driver was tenant fit-out services, contributing $73 million—a clear indicator that demand for data center construction remains strong and the industry is still in a rapid growth phase. This is further confirmed by the $85 million in HPC hosting revenue, with a significant portion coming from recurring rent.

Adjusted net income came in at $0.1 million, a stark improvement from the $17.8 million loss in Q1. While not profitable yet, this near break-even result suggests APLD's business model is close to hitting full-scale monetization in 2026. With continued growth in fit-out services and more HPC hosting deals coming online, the company's future looks promising, especially as the industry continues to shift from construction to operational revenue.

APLD's Impact on CoreWeave and the HPC Hosting Market

APLD's earnings performance provides significant insights into the HPC hosting market, which is now shifting toward a more predictable, recurring revenue model. Historically, the industry operated on a "compute-by-the-hour" basis, but with the rise of long-term, dollar-denominated leases, the model is evolving toward something closer to a REIT (Real Estate Investment Trust) structure: revenue is calculated as ($ per MW·year) × term, with long-term contracts for power, space, and cooling. This model reduces exposure to GPU price volatility, making the revenue stream more stable.

As APLD's results suggest, there are two distinct models emerging within the HPC hosting industry:

– REIT Model (Colocation/Hosting): Companies lease power, space, and cooling under long-term contracts, with clients providing (or financing) their own GPUs. This model allows for scalable growth with steady, recurring revenue streams.

– Operator/Hybrid Model ("Neocloud"): The company acquires GPUs and sells compute capacity directly, assuming utilization and depreciation risk in exchange for potentially higher returns.

A key takeaway from APLD's earnings is the impact on CoreWeave. APLD's strong performance, especially in the HPC hosting space, provides insight into how CoreWeave, as a major player in the space, may continue to benefit. APLD highlighted CoreWeave's leasing revenue from the Polaris Forge 1 facility, which reinforces the growing demand for HPC hosting services. This further validates the REIT model, with CoreWeave's reliance on long-term leasing agreements showing how the model is evolving.

APLD's performance indicates that the REIT model may be accelerating toward profitability faster than the Operator/Hybrid model, which can take longer to scale due to its infrastructure and operational risks. As more players in the HPC hosting space adopt the REIT-style model, we can expect the data center industry to accelerate starting in 2026, with the REIT model becoming the dominant force in the coming years.

Summary

APLD's Q2 earnings provide a strong case for the HPC hosting model, with the surge in fit-out services signaling continued growth in data center construction and leasing. As the company approaches profitability, its success could set the stage for others to follow in adopting a REIT-based business model. The future of the HPC hosting industry seems poised for accelerated growth starting in 2026, with the REIT model likely becoming the dominant force in the years ahead.

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