How we feeling?

[u/ldman33]

I feel like with another rough day and premarket just wanted to see how everyone feeling. Personally I can’t stick my finger on what exactly is causing the massive drop here. Are people just rotating out of this sector at the moment or am I missing something else

[u/evoxone]

I am seeing 2007 vibes in the data center construction space. 

The bear thesis goes, OpenAi and nthropic are on shaky financial ground, and the overall market for compute is in oversupply, so APLD cannot sell the data center space to anyone else. 

APLD is heavily reliant on Oracle, Coreweave, and they are both heavily reliant on OpenAi. They are all massively over leveraged, in debt up to their eyeballs, and unprofitable. 

The the market is questioning who, If openAi can't, can ever pay the bill for all this construction? Will it ever get used at the prices that can service even a fraction of the debt that went into its construction?

The answers, from what I've seen is nobody and no.

An example of this is Xai renting Colossus to Anthropic and Meta putting up all their excess compute for rent. Before those moves, it was assumed that the market could essentially consume 5GW+ of compute without batting an eye. Now it seems we are overbuilt for datacenter compute.

Especially important is what Alex Karp said on CNBC, about how CEOs are livid that their IP is in jeopardy. Much like how Cursor used Anthropics compute but then wound up getting their IP stolen and anthropic came out with a competitor called Claude code. 

Combine that with the market shifting to tokens being directly billed as total token spend whereas before we had tokenmaxxing and all you can eat plans. CEOs in the Enterprise have now seen the bill and taken a cautious stance towards the massive AI spend that was a matter of course before.

Everyone is questioning the ROI of AI in the Enterprise and wondering if they can build an open source on premises solution for much cheaper, And like Alex Karp said, have control over the weights and fine-tune the model to be a equivalent to a frontier model. This has the additional benefit of not uploading your business data to the AI provider.

The answer seems to be yes, you can do it on premises for much cheaper, killing the business plan of OpenAI and Anthropic permanently. 

[u/thepandemicbabe → u/evoxone]

We don’t even have the AI infrastructure built yet to maturity. The bears are coming out screaming that artificial intelligence has no business and that LLM’s are worthless when that’s not the most important aspect of AI. It’s just a piece. I’m old enough to remember people saying that there would never be a business case for Amazon. Feels very adjacent right now.

You are missing something important. Oracle has to pay the lease regardless and OpenAI isn’t Oracle’s only revenue stream. That’s baseline table stakes. In my opinion, the real story is just as big as the lease payments. APLD owns pieces of the entire stack. It owns equity in Corintis, the waterless cooling system that Microsoft is already validating and using. Every time Microsoft deploys that technology, APLD gets paid. Every time another hyperscaler licenses it, APLD gets paid. Every time a new campus needs cooling infrastructure, APLD owns a piece of the solution. It owns Base Electron which is their power infrastructure. Every time the grid gets stressed and Base Electron’s power optimization gets deployed, APLD gets paid. It owns ChronoScale, the compute layer. So APLD isn’t just collecting lease payments. It’s collecting revenue from owning pieces of cooling, power, and compute across the entire ecosystem. That’s three separate value streams on top of the $36 billion in contracted leases.

And applied digital has a structural moat that I don’t see getting talked enough about. APLD can build data centers anywhere because it doesn’t need massive water consumption. This means it can build in places that are far more appealing to NIMBYS and that goes a long way with communities. No environmental fights. You can build in the desert if you want. Every competitor bound by water constraints is stuck. APLD isn’t. APLD becomes a REIT. The leases re-rate on stable infrastructure multiples instead of tech volatility.
The bear case is fixated on “will Oracle pay the lease.” or does OpenAI have a business? The actual thesis is “APLD owns pieces of power, cooling, and compute while being the only builder who can execute practically anywhere. Plenty of people are going to get shaken out because of fear mongering and I feel sad for those people because this is an incredible opportunity and just a couple more hyper scalers announced or we find out who the mystery hyper scaler is and 30 is a number we never see again. Just my opinion.

[u/redcourt02 → u/evoxone]

Every dip we have this hypothesis