Applied Digital (NASDAQ: APLD) has shed 34% over the past year, a stark contrast to the S&P 500’s 21% gain over the same period.
The central question for shareholders is whether the company can sustain its AI data center construction program if credit markets tighten or lenders pull back.
Applied Digital relies heavily on borrowed capital to finance its facilities, and on October 7, 2026, Reuters reported the company posted a wider loss as construction investment increased.
During the fiscal Q1 2027 earnings call that same day, an analyst raised the challenging bond market environment and pressed executives on future funding options.
At the pace of the past twelve months, the company spent $4.5 billion more than it took in, with the business itself generating only $0.2 billion in operating cash.
The company currently holds $2.9 billion in cash, which, against recent burn rates, represents less than a year of runway without fresh financing.
Applied Digital owes $6.5 billion in total debt, nearly matching the $6.6 billion market capitalization of its shares, making the balance sheet sensitive to any shift in borrowing conditions.
When bond yields spiked in 2023, the stock dropped 62%, compared to a 9.5% decline for the S&P 500, illustrating just how exposed the company is to credit market sentiment.
Management noted during the October 7 call that more than 80% of the company’s debt principal does not come due until fiscal 2031 or later, providing some buffer against a near-term lending freeze.
On the same call, management confirmed the company closed a $1.59 billion offering of notes carrying a 7% interest rate, compared to 9.25% on notes placed the prior year, suggesting improved borrowing terms.
The company’s contracted revenue base offers another layer of support, with management citing approximately $36 billion in signed contracts underpinning its revenue outlook.
Its North Dakota campus, Polaris Forge 1, is already fully leased, and the company targets lease terms of at least 15 years with investment-grade tenants.
Management said that tenants of that credit quality give Applied Digital access to project finance lenders beyond the high-yield bond market, broadening its funding options.
Construction plans are accelerating rather than slowing, with management expecting to place over 600 megawatts into service over the coming twelve months, up from 250 megawatts in the prior year period.
Management also expects total capacity across its North Dakota campuses to reach 300 megawatts by the end of calendar 2026, with the bulk of the planned 600 megawatt addition arriving in 2027.
The company additionally expects to sign approximately 250 megawatts of expansion leases by year-end, at pricing it described as materially higher than rates on its earlier leases.
Free cash flow will be the critical metric to monitor in the upcoming fiscal Q2 2027 earnings report, given the $4.5 billion shortfall recorded over the past twelve months.
Any investor tracking this stock should watch whether the gap between construction spending and operating cash generation begins to narrow as newly built capacity comes online and generates lease revenue.
