Data Centers: A Speculative Boom

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The current enthusiasm for artificial intelligence – a fever, really – has predictably engendered a scramble for the physical infrastructure required to house its more demanding appetites. Data centers, once the discreet province of internet service providers, are now the glittering prizes in a speculative boom. Two companies, Applied Digital and Riot Platforms, have attempted to position themselves as beneficiaries, though with varying degrees of conviction and, frankly, competence.

Both began, rather innocently, by providing facilities for the computationally intensive, and let us say, ethically ambiguous, world of Bitcoin mining. Now, sensing a shift in the prevailing winds – and the direction of investment capital – they aspire to cater to the more respectable demands of the AI industry. The transition, naturally, is not without its ironies.

Applied Digital appears, at least on the surface, to be further along in this metamorphosis. Its stock has enjoyed a considerable ascent, a phenomenon that suggests either genuine progress or the triumph of marketing over substance. Riot Platforms, still tethered to the volatile fortunes of Bitcoin, has suffered accordingly. It is, however, attempting to diversify, a sensible precaution, though one undertaken rather late in the day.

Wall Street, ever optimistic, views both with favour, assigning ‘buy’ ratings with a disconcerting unanimity. Applied Digital is projected to reach $43.50 per share, a 33% increase, while Riot Platforms, more ambitiously, is tipped for a 95% surge. Such forecasts, of course, should be treated with the customary scepticism reserved for those who predict the future based on present trends.

Applied Digital: A Meteoric, if Precarious, Rise

The excitement surrounding Applied Digital stems from its recent growth, a truly remarkable 250% increase in revenue. This has been achieved through long-term contracts with hyperscalers – those vast, faceless entities that dominate the digital landscape – including CoreWeave. The company is, in effect, building digital cathedrals for these new gods.

It is currently constructing a network of these facilities – Polaris Forge 1, 2, and 3, and the rather less euphonious Delta Forge 1 – a testament to its ambition, if not its restraint. The scale of these projects is considerable, requiring billions in investment, with the hope of achieving $1 billion in net operating income within five years. One wonders if the arithmetic quite adds up, but such details are rarely permitted to intrude upon a good story.

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Riot Platforms: From Crypto to Calculation

Riot Platforms, unlike its competitor, is currently generating a profit, a fact that, in these turbulent times, should not be underestimated. Its recent earnings of $180 million, and a net income of $104 million, represent a considerable improvement over the previous year’s loss. However, this success is contingent upon the continued, and increasingly improbable, appreciation of Bitcoin.

The company is attempting to leverage its expertise in high-performance computing to enter the AI data center market, a sensible strategy, though one that requires a significant shift in focus. It has secured a ten-year lease agreement with AMD, a deal that could generate up to $1 billion in revenue. This, of course, depends on AMD’s continued success, a condition that cannot be guaranteed.

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Riot is also converting its existing crypto mining facilities into data centers, a pragmatic approach that minimizes capital expenditure. However, the transition will likely be gradual, and the company’s earnings may remain volatile in the short term.

Both companies, it must be said, are speculative ventures, and carry a degree of risk that should not be ignored. If forced to choose, one might favour Riot Platforms, given its current profitability and relatively modest valuation. However, the potential for a further decline in Bitcoin remains a significant concern.

Investors should approach both stocks with caution, and allocate only a small portion of their portfolio to these ventures. The data center boom, like all booms, is likely to be followed by a period of correction, and those who enter late may find themselves holding the bag. A degree of skepticism, in these matters, is always advisable.

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2026-02-21 03:32