Applied Digital's Polaris Forge 2 Campus Advances Amid High Execution and Financial Risks

What happened

Applied Digital is progressing with its Polaris Forge 2 campus, targeting gigawatt-scale AI infrastructure to meet rising demand in a power-constrained market. This move aligns with the company's strategic pivot from crypto hosting to AI/HPC data centers, backed by long-term CoreWeave leases and Macquarie funding. However, the DeepValue report underscores persistent risks, including negative free cash flow, extreme customer concentration, and a critical $375 million SMBC loan refinancing due in 2026. Recent financials show continued losses, internal control weaknesses, and heavy reliance on external capital, raising doubts about sustainability. While the new campus could drive growth, it amplifies execution challenges without yet de-risking the investment thesis.

Implication

The advancement of Polaris Forge 2 reinforces Applied Digital's aggressive growth strategy in AI infrastructure but fails to address core vulnerabilities like negative cash flow and customer concentration. Successful project completion could unlock substantial revenue, yet any delays or cost overruns might strain the already leveraged balance sheet and trigger refinancing distress. Investors must closely monitor milestones such as Polaris Forge 1 operational start and the SMBC loan refinancing, as these will signal the company's ability to convert promises into cash flows. The stock's 176% run-up suggests market optimism is priced in, heightening downside risk if execution falters or capital markets tighten. Overall, this news warrants a continued 'wait-and-see' approach until tangible de-risking occurs through diversified tenants and stable financing.

Thesis delta

The new article on Polaris Forge 2 does not shift the investment thesis, which remains centered on high execution and financial risks as outlined in the DeepValue report. Investors should still await evidence of successful project delivery, refinancing, and customer diversification before reassessing the 'WAIT' stance, as the development adds scale but not safety.