Applied Digital shares rise 6.78% on deal to develop AI data center in Texas
Key Facts
Applied Digital shares rose 6.78% on Wednesday, October 21, alongside the announcement of an agreement to develop an artificial intelligence and high-performance computing data center in Texas. The gain reached that level in an update published by Benzinga at 11:22 a.m., as coverage of the stock resumed with a buy rating. According to Soluna's filing with the U.S. Securities and Exchange Commission, the company signed a definitive agreement to establish a joint venture with Applied Digital near Silverton in Briscoe County. The facility has a planned critical IT load capacity of 50 megawatts and is intended to host artificial intelligence and high-performance computing applications. Meanwhile, Roth analyst Brian Baratian resumed coverage of Applied Digital with a "buy" rating and a price target of $35 per share, according to Investing.com.
Under the deal's structure, Applied Digital will provide development capital in exchange for an expected controlling stake of 51% in the project company, according to Investing.com. Soluna will contribute the land and power-related assets, retaining the remaining 49% stake after closing. The prospective tenant is ChronoScale, a publicly traded company majority-owned by Applied Digital, which has signed a "non-binding letter of intent" to lease the facility, according to the official filing. The definitive lease remains subject to negotiation and execution by the parties, leaving the occupancy arrangements among the outstanding commitments. Applied Digital's ownership of ChronoScale stood at about 97% of outstanding common shares upon completion of the cloud business spinoff in May, according to Investing.com.
The agreement followed Soluna's announcement in August that it had purchased land in Briscoe County, Texas, according to Investing.com. The company purchased 397 acres earmarked for the development of an AI computing campus. The planned campus, named Dorothy, has a potential capacity of up to 300 megawatts under the development plan announced at the time. That capacity represents potential development of the site, rather than IT loads already in operation. The agreement with Applied Digital follows the purchase of the land designated for the campus, moving cooperation between the two companies into project company and financing arrangements to develop the planned facility.
On power, Soluna announced in September that the Electric Reliability Council of Texas had conditionally classified the 100-megawatt Dorothy campus as a base load. The classification came under Batch Zero, according to the company's filing with the U.S. Securities and Exchange Commission. The September announcement also included a request for an additional 50 megawatts of interconnection capacity that was under review. For the facility covered by the new agreement, the companies expect to source electricity from the Briscoe Wind Farm and the grid, according to the official announcement. Those supply arrangements remain subject to definitive documentation, with power agreements among the requirements for completing the transactions.
Applied Digital is entering the project as it continues to expand its operating capacity, having announced in early October that operational critical IT loads at its Polaris Forge 1 campus had reached 250 megawatts. The company said the campus was fully leased, with contracts to provide capacity upon completion of its development. Contracted critical IT loads at the campus upon completion total 400 megawatts, according to Applied Digital's statement. Financially, the company reported revenue of $341.9 million in its latest reported fiscal quarter, up 322% from the corresponding period a year earlier. Net loss attributable to common shareholders was $221.0 million for the same quarter, according to the earnings statement, alongside revenue growth and an expansion of operating infrastructure.
The companies expect to close the transactions by the end of the current calendar year, according to the official announcement, subject to contractual and regulatory requirements. Closing conditions include approval of a tax abatement for the project in Briscoe County. Corporate approvals and title documentation associated with the transactions must also be completed before closing. The required documentation also includes definitive operating agreements governing the joint venture between Applied Digital and Soluna. Signing definitive lease and power agreements remains among the steps required to meet the targeted year-end closing.