CoreWeave Expands Lease with Applied Digital: $4bn Revenue Boost, Stocks Surge

CoreWeave’s decision to exercise its option for an additional 150MW of AI compute capacity under its lease agreement with Applied Digital marks a significant escalation in the demand for specialised infrastructure supporting artificial intelligence workloads. This move not only expands the existing partnership but also signals robust confidence in Applied Digital’s ability to deliver high-performance computing resources at scale, with immediate positive repercussions for both entities’ market positions. The exercise comes amid a broader surge in AI-driven data centre requirements, where capacity expansions like this are pivotal for maintaining competitive edges in hyperscale operations.

Implications of the 150MW Expansion on Contracted Revenues

The additional 150MW brings the total leased capacity to 400MW, substantially boosting Applied Digital’s contracted revenue pipeline. Based on the terms of the initial 15-year agreements, this expansion is projected to add approximately $4 billion in revenue over the lease period, elevating the total to around $11 billion. Such long-term commitments provide a stable foundation for Applied Digital, mitigating risks associated with volatile demand cycles in the technology sector. For CoreWeave, securing this capacity ensures uninterrupted access to Nvidia-powered GPUs essential for AI training and inference tasks, aligning with its strategy to dominate the AI hyperscaler market.

Analysing the revenue impact, Applied Digital’s fiscal fourth-quarter results, released on 30 July 2025, reported a 41% year-over-year revenue increase to $60.7 million, driven primarily by its data centre hosting segment. The exercise of this option, announced post-quarter, positions the company for accelerated growth in fiscal 2026. Company guidance indicates that the full 400MW deployment could contribute to annualised revenues exceeding $700 million once operational, assuming similar pricing structures to the initial 250MW lease. This is supported by historical filings, where the original agreements were valued at $7 billion for 250MW, implying a per-MW revenue run rate of about $1.87 million annually.

These figures, drawn from Applied Digital’s earnings release on 30 July 2025, underscore the transformative potential of the partnership. Working backwards from current market data, Applied Digital’s shares traded at $10.03 as of 31 July 2025, reflecting a market capitalisation of $2.26 billion. This valuation implies a multiple of approximately 0.2x on the total contracted revenues, which appears undervalued compared to historical precedents in the data centre industry, where similar long-term contracts have commanded multiples exceeding 1x for growth-oriented firms.

Market Reactions and Stock Performance

The announcement triggered sharp gains in both companies’ stocks, with Applied Digital surging 16% and CoreWeave climbing 10% in immediate trading. This reaction highlights investor enthusiasm for deals that solidify AI infrastructure supply chains. Applied Digital’s price movement pushed it above its 50-day moving average of $10.11, signalling potential momentum. Historically, the stock has rebounded from a 52-week low of $3.01, achieving a 233% gain year-to-date as of 31 July 2025, largely fuelled by AI-related contracts. The post-announcement trading volume reached 20.7 million shares, below the 10-day average of 30 million but indicative of heightened interest.

Sentiment from professional analysts remains bullish. Roth MKM reiterated a “Buy” rating on Applied Digital with a $14 price target, citing the lease expansion as a key de-risking factor. Similarly, Seeking Alpha contributors expressed strong buy convictions, noting that the 15-year term provides visibility into multi-year revenue streams, potentially sparking a breakout. These views align with the market’s positive response, though they caution that execution risks, such as timely facility construction, remain critical.

Prospects for a Third Lease Agreement

A third lease agreement, reportedly in the finalisation stages with terms mirroring the existing ones, could further amplify the partnership’s scope. If structured similarly, this could involve another 150-250MW of capacity, potentially adding $4-7 billion in contracted revenues over 15 years. Such an expansion would reinforce Applied Digital’s pivot from cryptocurrency mining to AI infrastructure, a transition validated by recent deals. The company’s Ellendale campus in North Dakota, where much of the capacity is hosted, is designed for scalability, with the first 100MW expected online in Q4 2025 and additional facilities under construction.

Model-based estimates suggest that finalising this third agreement could elevate Applied Digital’s forward revenue projections. Assuming a conservative 200MW addition at comparable rates, an AI-generated forecast based on historical lease pricing and industry growth rates projects fiscal 2026 revenues at $450 million, up from $255 million in fiscal 2025. This would imply a forward P/E ratio of around -29.5 based on expected EPS of -0.34, though profitability is anticipated to improve as capacity ramps up.

• Potential revenue addition: $5.6 billion over 15 years for 200MW.
• Deployment risks: Dependent on power availability and regulatory approvals in North Dakota.
• Strategic fit: Enhances CoreWeave’s network, which already includes expansions in Pennsylvania up to 300MW.

Comparatively, CoreWeave’s other partnerships, such as with Core Scientific for 382MW across multiple sites, demonstrate a pattern of aggressive capacity buildouts. For Applied Digital, securing this third deal would diversify its client base while capitalising on the AI boom, where global data centre demand is forecasted to grow at 15% annually through 2030 according to analyst reports.

Broader Industry Context and Risks

This lease exercise and pending agreement occur against a backdrop of intensifying competition in AI compute resources, where power reliability and GPU integration are paramount. Applied Digital’s focus on next-generation facilities positions it well, but challenges include escalating construction costs and energy constraints. The company’s book value stands at $2.03 per share, supporting a price-to-book ratio of 4.95, which may compress if execution falters. Nonetheless, with earnings beating estimates in Q4—reporting EPS of -0.10 against expectations of -0.24—the trajectory appears upward.

In summary, CoreWeave’s capacity expansion with Applied Digital exemplifies the rapid evolution of AI infrastructure partnerships, promising substantial revenue growth and market revaluation. As the third agreement nears completion, investors will watch closely for confirmation of these terms, which could cement Applied Digital’s role in the AI ecosystem.

References

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