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Chapter 1: What is the main topic discussed in this episode?
Welcome back to the Rundown, interview edition. Today, I am talking to Wes Cummins, the CEO of Applied Digital. Applied Digital is a company that physically builds AI data centers, and their stock has been on fire, jumping from $5 to over $40 in the past year.
So in today's conversation with Wes, we get into the origins of the company and how they pivoted from being a crypto miner to focusing on AI. We also discuss the challenges of building physical data centers and why he's building them in North Dakota. And then we really dive into the business model and some of the concerns surrounding the debt levels on the company.
This was one of my favorite conversations because Wes was really getting into the details, which I appreciated. You know, parts of this conversation get really nerdy and technical. I think some of you guys are gonna love that as well. So let's get into it. All right, today we are talking to Wes Cummins, the CEO of Applied Digital. Wes, thanks so much for hopping on the rundown today.
Thanks for having me. I appreciate it.
I'm super excited for today's conversation because I feel like data centers are like the hottest topic right now in the news. So much happening with data centers as AI takes over the economy. So I want to first talk about like applied digital and how you pivoted the company to being an AI data center company.
And when you first founded the company in 2021, it was more focused on being a crypto mining company.
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Chapter 2: How did Applied Digital pivot from crypto to AI data centers?
And then you decided to pivot it. in 2023, I believe. So I'm just curious, take me back to that time. When did you know that you had to make the pivot to AI?
Sure. So we started the company in 2021. What I would say about Applied Digital is we've never been a Bitcoin miner.
Chapter 3: What challenges does Applied Digital face in building data centers?
We were always a data center company. So when we started in 2021, What we did was when China cracked down on crypto, we saw the opportunity to build data center capacity for Bitcoin miners in the United States. So we built over a two year period, we built 500 megawatts of data center capacity, but we didn't mine the Bitcoin. We actually leased it out just like a data center model would.
Chapter 4: Why is North Dakota a hotspot for AI infrastructure?
We leased it out to Bitcoin miners, Marathon being our largest customer there. So we signed a big contract with Marathon, built out, helped them become the largest miner in the world through that lease of our data center capacity where we ran their equipment for them. And then a year into that, so we're still building it out in 2022.
we decided to build high-performance computing on the same campuses. That was the idea, to build high-performance computing. So during 2022, we hired some guys. They were previously building data centers for Meta, and we designed a high-performance computing data center that we started building in Jamestown, North Dakota. And at the time, the market was very different than it is today.
So we designed a 10 megawatt build in Jamestown, North Dakota. It was purpose built for high performance computing. And if you remember, AI wasn't the workloads then at all. It was a niche market. And so it was a much smaller build, but we thought it would be a very nice addition onto our Bitcoin data centers. So we started building that in 22.
By the end of 22, we had GPUs running out of our facility in Jamestown. And at the time, we were just proving out that the data center capacity worked. And our customers were mostly universities, so people who were paying very, very little for the GPUs. But again, we weren't trying to sell the GPU capacity. We're just trying to show that the data center itself worked.
And then ChatGPT is introduced in December of 22. No big change for us. But when the NVIDIA H100 was introduced in March of 23, we were out marketing that data center capacity and what we had built in Jamestown actually was a good fit for the H100. And so I was introduced to some AI labs and frontier models that had demand for these GPUs. they didn't want to deal with data center capacity.
They just wanted GPU capacity. They just wanted to use the GPU. So we actually ended up purchasing GPUs, deploying them. We had one of the largest clusters of H100s running in the first week of July of 2023. And through that process, as we started speaking more and more to these companies, I started to see the demand that was there. We went into the market looked for data center capacity.
We ended up leasing data center capacity from three different data center companies, and we were deploying GPUs. But what I realized pretty quickly was there was not very much data center capacity. And so what we decided at that point, I went back to my team, my data center design team, and I said, hey, guys, I know we're talking about 10, maybe 15 megawatt builds.
We need to go back to building hundreds of megawatts of data center capacity. So During the summer of 23, we designed a 100 megawatt facility. We worked with the NVIDIA's data center design team. We worked with the Cray unit over at HPE because we're trying to figure out, hey, what do we design?
And what we designed to was, it wasn't called Blackwell at the time, but it ended up being named Blackwell. It had a numbered name, if I remember correctly. And so we designed to that. We broke ground in October of 23. And my idea at that time was, We want to serve hyperscalers. How do we get to the serving of hyperscalers? I think they're going to need this capacity.
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Chapter 5: How does Applied Digital manage its debt and financial risks?
So that lets us have downtime, like 23 seconds a month or something like that. So, yeah. So we build these super resilient, redundant facilities with backup power, multiple paths of power, backup cooling, all of these things because that equipment that goes inside is super expensive and it needs to run basically 100% of the time. So that's our job. I always tell people,
Please think of Applied Digital as being a boring business model where I just keep signing 15-year massive leases and then we build the buildings and then that revenue and those earnings start to flow through our income statement. you shouldn't expect anything more from me than just more of those leases and more of those campuses and more of those customers. And that's what we're doing.
And we've even simplified our business where, you know, just this week we completed the spin out into another public company of our cloud business. So that simplifies our business even more. We have an IPP that we own 10% of called Base Electron, where that's going to build power generating assets. But Applied Digital itself will have ownership in those. So our shareholders benefit.
But we sign data center leases. We build data centers. We deliver them. We operate them. And that's what we do.
You know, I like that you're setting the expectations because obviously, like, the investment community is super excited about AI and data centers. I mean, Applied Digital stock is up 600, almost 700 percent over the last 12 months. So everyone gets super excited, but you're kind of setting expectations, which I like. And I also want to ask you more about the spinoff.
You spun off the cloud side of the business into a separate company called Chronoscale. So why do you think that it was – Why is it better for Applied Digital to just purely focus on the data center landlord side of the business and not try to get into the cloud side of the business, which is obviously a lot of hype around that as well?
Yeah, so one, the cloud side of the business, terrific. I think huge amount of potential. You see CoreWeave, you see Nebius, you see what Iron's doing. So I think there's a huge amount of potential there. However, two items here. It's a capital-intensive business. Our business is a capital-intensive business. So trying to do both of those just requires so much capital.
So this spin-out, it's its own separate company now, has its own capital stack, can raise its own capital to grow its business, and isn't applied digital, just constantly feeding all of this capital in. So separate capital stack, big, big, big improvement for us and I think for our shareholders.
Two, a lot of the customers that we look to have or potential customers, so all of the ones that I mentioned,
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Chapter 6: What is the significance of the AI boom compared to the dot-com bubble?
And the reason we did spin it out is because I think there's a massive opportunity in that market and that business can grow in a huge way outside of Applied Digital and maybe be a data center customer for Applied Digital. So there's a big, big opportunity, in my opinion, for the ChronoScale business.
Applied Digital shareholders get to participate in a big way because we own the majority of ChronoScale, but it lets it go and grow. We've hired new management there. I'm super excited about the talent that we're attracting. We're gonna announce some more people that are joining ChronoScale. We had a really good experience on attracting
really, really high quality executives to come to, uh, to, to that company. And I'm, I'm super optimistic on the growth there.
I love it. Um, going back to building physical data centers, I'm just curious, you know, what are the biggest challenges right now when it comes to actually physically building this stuff? Cause you hear about all these shortages of everything. I mean, just finding enough, uh, you know, tractors, like it just, there's a shortage of everything right now, materials, labor, uh, power.
So what are some of the biggest challenges right now? What are you doing to kind of overcome some of that? Because, you know, I have a background in civil engineering and I remember I used to have some of these projects back around 2020 during COVID 2021. We used to have shortages of everything electrical. It was just a mess. So I imagine you're dealing with that times probably five now.
So how do you overcome some of that stuff? Because, I mean, you're on a time crunch right now to build as fast as possible. There's so much demand for commute. So how do you overcome some of the shortages?
So the this is the maybe a snarky comment, but the best way to solve those is to do it two years ago. And so that's what we did is when we were going through the first build, what we did, we redesigned, we really slimmed down the amount of critical vendors that we use really to just a handful, four or five. And so that streamlined our supply chain.
And then what we did with those vendors is, again, I'm like, hey, I think this is going to be a big market. And so we went and bought out capacity of their factories. So I bought out all the capacity of my key component suppliers. of their factories. In some cases, we've really helped them with their ramping up their manufacturing of some of the things that we need.
But we did this two years ago when the market wasn't like it is right now. And so we've locked in that supply chain, what we call MEP, mechanical, electrical, and plumbing. That's the key of the supply chain. So that's all of our, you know, medium voltage switch gear, step-down transformers, chillers, heat rejection, all of those items.
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Chapter 7: What is the business model of Applied Digital as a landlord?
And I'm sure we'll have a few more of those swings this year. But the trend, the underlying trend is really good. But I see so many differences between the actual bubble versus what's going on here now. And the actual bubble, by the way, the biggest companies in the world were created out of that.
It was that dip in the middle of like, hey, we built all this fiber, we built all this infrastructure, and it just took eight or 10 years before we used it all. But then the largest companies in the world came out of that. It still was a great success story, but everyone is rightfully so to be concerned. We've just never seen anything like this. So it creates a lot of things in your mind.
I think I've come around where I was like, yeah, this might be a bubble last year. I'm like, no, this is not a bubble at all, which actually makes me a little bit nervous because no one's calling it a bubble anymore. So maybe it is a bubble now. So it's just funny how the vibe changes on a week-to-week basis. Wes, this was an awesome conversation. I know our audience is going to love it.
I appreciate you taking the time to kind of explain everything and talk about the company. And hopefully we can do this again soon as more of your data centers come online. Maybe we'll have to do this in North Dakota.
Yeah, that'd be great. I'm happy to take you with me.
I appreciate it, man. This was great. Well, all right, guys, hope you enjoyed that conversation with Wes Cummins. I think my favorite part of the conversation was just getting a better understanding of the business model of running an AI data center company. I kind of like how we called the company a data center landlord. And look, investors are obviously bullish right now.
The stock has gone up 75% this year and over 600% in the last 12 months. But I do wonder how much more room to run there is on this stock. Like right now the price target from Wall Street analysts is all over the place. I've seen as low as $18 to as high as $56. I do think the stock will be in for a bumpy ride though.
Let me know in the comments on what you guys thought about the interview and your thoughts on the company. Do you think the valuation has gotten out of hand? Are you bullish on a data center landlord company or do you prefer investing in cloud players like CoreWeave and Nebius? Drop your thoughts on Spotify and YouTube. And while you're at it, consider giving us a five-star rating as well.
You know, all that engagement really does help us out and it helps other people find the show. And just an FYI for first-time listeners, we post episodes every day throughout the week, breaking down what's happening in the markets. So definitely get subscribed to the podcast if you haven't already. Thank you guys again for listening, watching, and commenting.
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