How Applied Digital Cracked AI's Power Crisis Using 19th-Century Engineering

2026-01-20 20:07:34

The Real Roadblock: When Turbines Can’t Keep Up

Everyone talks about GPU shortages and data center capacity, but here’s what’s actually strangling AI growth: power generation. And it’s not even close.

AI data centers are power-hungry beasts. A single facility can consume as much electricity as a small city. The problem? Gas turbine manufacturers can’t build fast enough. Major manufacturers are quoting lead times of 7-8 years, with some delivery dates not hitting until 2032. NextEra Energy’s CEO confirmed that new gas-fired generation facilities won’t be operational until 2032 at the earliest.

This creates a massive competitive disadvantage for data center operators racing to capture market share from hyperscalers desperate for computing capacity.

Applied Digital’s Unconventional Play

Applied Digital (NASDAQ: APLD) just reported Q2 FY2026 results that turned heads: revenue jumped 250% year-over-year to $126.6 million. The company delivered its first 100 MW of AI computing capacity at Polaris Forge 1 for CoreWeave, with plans to reach 400 MW at that campus alone. A 15-year agreement with a major U.S. hyperscaler locked in 200 MW of capacity at Polaris Forge 2, projected to generate ~$5 billion in revenue.

But the real headline? Applied Digital found a way around the turbine shortage.

The Retro Solution: When 1867 Meets 2026

Applied Digital signed an agreement with Babcock & Wilcox (operating since 1867) to deploy 1 GW of power generation. Instead of waiting years for modern gas turbines, the company is dusting off proven steam turbine technology.

Here’s how it works: B&W will design and install multiple 300 MW natural gas-fired power plants featuring traditional boilers and steam turbines at Applied Digital’s data center campuses. Siemens Energy will supply the generator sets. The first units are slated to come online in 2028.

“We’re using the same boiler technology as coal plants, but running on natural gas,” Applied Digital CEO Wes Cummins explained during earnings. “B&W has been converting coal facilities to natural gas for over a decade. It lets us hit the market years ahead of competitors stuck in the gas turbine queue.”

The Competitive Moat: 3-4 Years of Breathing Room

This isn’t just clever engineering—it’s a strategic masterstroke. While competitors wait until 2031-2032 for traditional gas turbines, Applied Digital could bring AI infrastructure online by 2028. That’s a 3-4 year head start to lock in long-term contracts with hyperscalers.

The company is already in advanced discussions for 900 MW of additional capacity and targeting 5 GW over the next five years. Every facility that goes live early translates into signed contracts and predictable revenue streams.

Why Steam Turbines Matter (More Than You Think)

Steam turbine technology might sound antiquated, but it’s battle-tested and reliable. The advantage? Proven manufacturing timelines and supply chains. Instead of competing in a congested queue for new turbines, Applied Digital tapped into a less saturated market with established vendors who can execute on compressed schedules.

This move signals that the AI infrastructure buildout isn’t just about raw computing power—it’s about solving unglamorous logistics problems. The company solving power generation constraints wins the data center wars.

Applied Digital just demonstrated that breakthrough innovation sometimes means looking backward, not forward.

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