Applied Digital (APLD) Q1 FY2027: Base Rent Doubles as Costs Rise

Applied Digital (APLD) fiscal Q1 2027 earnings, released with its 10-Q on October 7, 2026 for the quarter ended August 31, show that newly delivered data center capacity is now producing rent, while financing costs and corporate expenses still leave common shareholders with a large loss [1][2]. Three operating questions framed the company before this report: whether delivered capacity would start paying rent on contract terms, whether recurring revenue would be thick enough once tenant fit-out work faded, and who would fund the construction program. This quarter, base rent roughly doubled; fit-out revenue rose rather than fell, and corporate expenses absorbed the segment profit; the parent also issued convertible preferred stock that has since converted into common shares. Overall, growth has moved into the rent-paying stage, but profit and cash still lag the pace of construction.

Applied Digital started as a crypto-mining hosting operator and now mainly builds liquid-cooled AI data centers, leasing whole buildings long term to CoreWeave and investment-grade cloud providers [3]. Its revenue comes from take-or-pay rent, cost-plus tenant fit-out services, legacy crypto-mining hosting, and ChronoScale, a consolidated subsidiary in which it holds about 96% [2].

Base rent rises to $65.8 million as new buildings go live

The rent increase came from newly delivered capacity. The 75 MW first phase of Building 2 at Polaris Forge 1 reached ready-for-service on July 1, bringing live capacity at the campus to 175 MW at quarter end [1]. Base rent was $65.8 million for the quarter, compared with an average of about $33.3 million in the rent-paying quarters of the prior fiscal year, and above the roughly $46 million contract level for 100 MW alone [2][4]. On an average of about 150 MW in service, that works out to about $1.77 million per MW per year, broadly in line with the rate implied by the contract. The net operating income margin was 89%, slightly below 91% in the prior fiscal year [1].

Further deliveries are already in place, though a second consecutive rise in rent still needs next quarter's numbers. The second 75 MW phase of Building 2 came online on October 1, taking the campus to 250 MW, and the company says delivered load across its North Dakota campuses will reach 300 MW by the end of 2026, including the first capacity at Polaris Forge 2 [1]. At this quarter's per-MW rent, base rent in fiscal Q2 would be about $100 million. According to the earnings call summary, management aims to place more than 600 MW of new capacity into service over the next 12 months [5].

Fit-out revenue expands and corporate costs absorb segment profit

Tenant fit-out revenue did not fall; it rose to $183.5 million, about 2.7 times the prior fiscal year's quarterly average, at a margin of about 4% [2]. Recurring revenue from rent plus hosting reached $116.9 million, about 70% above the prior fiscal year's quarterly average, yet its share of total revenue fell to 34% because fit-out revenue grew faster [2]. The hosting sites remained fully utilized, and the hosting segment earned $13.3 million [2].

Corporate expenses offset the segment gains. Selling, general and administrative expense was $114.7 million, above the prior fiscal year's quarterly average of about $83 million, and included $65.5 million of stock-based compensation; it absorbed the $46.8 million combined profit of the two segments and left an operating loss of $62.4 million [2].

Construction spending jumps and the parent still taps equity

Construction spending accelerated sharply. Cash paid for property and equipment was $2.07 billion, about 2.9 times the prior fiscal year's quarterly average, which the company attributes to simultaneous construction at five campuses [2]. Project notes and released escrow funds covered most of it, but the parent issued $275 million of Series G convertible preferred stock, all of which converted into about 9.7 million common shares; shares outstanding rose from 287.9 million at the end of May to 302.4 million on October 6 [2]. Of the $2.95 billion in unrestricted cash, about $2.91 billion sits in the project entity in which Macquarie holds preferred units [2].

Financing costs have reached the income statement. Net interest expense was $41.6 million, above the $29.5 million for the whole prior fiscal year; another $35.7 million of interest was capitalized, and Macquarie's preferred units received $60.1 million of paid-in-kind dividends [1][2]. Net loss from continuing operations attributable to common stockholders was $221.0 million [1]. Interest income and capitalized interest, the two buffers that hold down net interest expense, will shrink as cash is spent and buildings enter service.

New focus: ChronoScale moves toward large-scale AI compute

ChronoScale's shift toward large-scale compute has not yet produced returns. In August it signed a three-year partnership with Microsoft covering about 50 MW of AI compute capacity [2]. ChronoScale revenue was $41.5 million this quarter, of which about $23 million came from one-time GPU hardware resales at a margin of about 2.6%, and it posted an operating loss of about $25.4 million; the capital spending for the deployment and who will fund it have not been disclosed [1][2].

Conclusion

This quarter confirmed that delivered capacity converts into high-margin rent at contract rates, so the growth engine has entered the rent-paying stage. Profit conversion remains held back by corporate expenses, net interest and the claims of senior capital, and cash generation will not cover construction and interest until contracted collections scale up in fiscal 2028. The next tests are whether fiscal Q2 base rent reaches about $100 million, whether Polaris Forge 2 comes online by year-end, and whether the parent issues more equity.

Sources

[1] APLD 8-K filed 2026-10-07 (Q1 FY2027 earnings release, Exhibit 99.1), 2026-10-07, 8-K earnings release, https://www.sec.gov/Archives/edgar/data/1144879/000114487926000057/apldq127earningsrelease.htm [2] APLD 10-Q filed 2026-10-07 (Q1 FY2027), 2026-10-07, 10-Q quarterly report, https://www.sec.gov/Archives/edgar/data/1144879/000114487926000059/apld-20260831.htm [3] APLD 10-K filed 2026-07-29 · contracted lease portfolio, 2026-07-29, 10-K annual report, https://www.sec.gov/Archives/edgar/data/1144879/000114487926000048/ [4] APLD 10-K filed 2026-07-29 · base rent and tenant recoveries, 2026-07-29, 10-K annual report, https://www.sec.gov/Archives/edgar/data/1144879/000114487926000048/ [5] APLD Q1 FY2027 earnings call summary 2026-10-07, 2026-10-07, Drillr earnings call summary (not a verbatim transcript), drillr://earning_call_summary/APLD/2026-10-07