Key Takeaways
- Applied Digital, a leading data center designer, builder, and operator, reported a 250% year-over-year revenue growth in the second quarter of fiscal 2026, driven by exploding demand for AI data centers.
- The AI industry is facing a major bottleneck due to the limited power generation capacity, which is hindering the growth of AI data centers.
- Applied Digital has signed a deal with Babcock & Wilcox to deliver 1 GW of power using steam turbines, which will come online in 2028, years before standard gas turbines could be installed.
- The use of steam turbines will give Applied Digital a competitive advantage, allowing the company to bring AI data centers online 3-4 years earlier than the competition.
Introduction to Applied Digital’s Growth
Applied Digital, a red-hot data center designer, builder, and operator, has reported incredible growth in the second quarter of fiscal 2026. The company’s revenue soared 250% year over year to $126.6 million, driven by the exploding demand for AI data centers. This growth is a testament to the increasing demand for AI computing capacity, which is being driven by tech giants and hyperscalers. Applied Digital has been at the forefront of this growth, delivering the first 100 MW of AI computing capacity at its Polaris Forge 1 campus, which will eventually provide 400 MW of total capacity for CoreWeave.
The Bottleneck in AI Power Generation
However, the AI industry is facing a difficult problem. The bottleneck isn’t GPUs or buildings, but power generation. AI data centers require enormous amounts of power, and the electric grid simply can’t keep up. This has led to a shortage of gas turbines, which are needed to power these data centers. The shortage is so severe that customers are waiting 7-8 years for new gas turbines, and a new gas-fired power generation facility is not expected to come online until 2032. This has forced tech giants to get creative in their attempts to address this problem, with some exploring nuclear power and others using retired commercial aircraft engines to keep AI servers running.
Turning to Steam Turbines for a Solution
Applied Digital has found a solution to this problem by turning to steam turbines. The company has signed a limited notice to proceed with Babcock & Wilcox, a company that has been in operation since 1867, specializing in the design and manufacture of steam turbines. B&W will design and install multiple 300 MW natural gas-fired power plants, each featuring boilers and steam turbines, in one of Applied Digital’s AI data center campuses. The plan is for the new power generation capacity to come online in 2028, years before standard gas turbines could be installed. This will give Applied Digital a competitive advantage, allowing the company to bring AI data centers online 3-4 years earlier than the competition.
The Benefits of Steam Turbines
The use of steam turbines will allow Applied Digital to increase its capacity to 5 gigawatts over the next five years, which is a realistic target given the demand environment. By using steam turbines, the company won’t have to wait until the 2030s to bring new AI data centers online and continue growing its revenue at an impressive rate. This is a significant development, as it will enable Applied Digital to sign big multi-year deals with hyperscalers desperate to boost capacity. The deal with Applied Digital marked B&W’s entry into the AI data center market, and it is likely to be a game-changer for the industry.
Conclusion and Future Outlook
In conclusion, Applied Digital’s growth is a testament to the increasing demand for AI computing capacity. However, the AI industry is facing a major bottleneck due to the limited power generation capacity. The use of steam turbines is a solution to this problem, and it will give Applied Digital a competitive advantage. As the demand for AI computing capacity continues to grow, it is likely that we will see more companies turning to steam turbines and other alternative power generation solutions. The future of AI data centers looks promising, and Applied Digital is well-positioned to capitalize on this growth. With its innovative approach to power generation, the company is set to continue growing its revenue at an impressive rate, making it a key player in the AI industry.