The main data center negatives occur in the construction phase, Applied Digital CEO says

[00:00:00] Speaker 1: But with stocks in the crosshairs, particularly AI stocks, let's get to our power interview, the midterm maelstrom leading to a watershed wipeout just Wednesday and Thursday alone. AI infrastructure and data center stocks losing an estimated $23 billion in market value in response to the widespread data center backlash. The rebuke particularly strong in Texas. [00:00:23] Speaker 2: I will issue a moratorium, a ban on any data center permits until we pass laws to protect the people of Texas, first and foremost. [00:00:34] Speaker 3: This revolt against data centers are just the initial tremors of a bigger AI earthquake that is upending American politics. And we have to be on the right side of this issue. [00:00:44] Speaker 1: Joining me now, one of the data center leaders facing the aftermath of voter results tumult, right? West Commons, chairman and CEO of Applied Digital. You're headquartered in Texas. How do you feel now? [00:00:56] Wes: Still love Texas. Love living there. But, you know, obviously change is afoot. So let's see what that turn takes us there in that state. [00:01:06] Speaker 1: Are you hiring lobbyists? Hand over fist? I mean, I've got to hear what you guys are thinking and talking about this day after, this week after. [00:01:14] Wes: So for us, we actually don't build anything in Texas. So while I live there and we're headquartered there, we actually build things in the state of North Dakota primarily. We build in Louisiana. We build in Alabama. And so we're very focused. You know, data center is a real estate business and real estate is a very localized business. And so we focus, you know, the states where we're in, for sure. But we really focus on the communities themselves. That's where we get permits. That's where we partner. That's how we execute and build our facilities. So it's really focused on those small communities in which we build our facilities. [00:01:48] Speaker 1: How real, really, Wes, is the risk that Democrats will shut down the whole AI operation? If you really listen to the Texas governor-elect, she in essence said she wants a pause so that some regulations and guardrails could be put in and then we move forward. [00:02:04] Wes: I think, you know, we need to take a deep breath. And I think the point of more regulations, guardrails, as they say, and guidelines of how these are executed, how they're built, where they're built, how they operate, how they benefit the grid, how they benefit consumers, how they benefit towns. I don't think that's a bad thing. And I think, you know, you get a lot of, you know, negative stories around developers. Of course, there's some developers that are going to do things poorly. They're going to build, you know, next to a school. They're going to do things that you just shouldn't do. And so to have those guardrails in place, I think, is fine. And I think, you know, we'll see over the next six, 12 months that these projects do move forward. There will be some new regulations put in place. And what we've done in where we build, and we have a lot longer history than most of this, and we have seen the results and we get the benefit of those results. But we've really tried to execute this, what we call the right way. [00:03:02] Speaker 1: Interesting, though. There was one small town that bucked the trend, Harwood, North Dakota. I find this really interesting because you operate, you have a data center in North Dakota right there. It was the only one so far to defeat their initiative. And that's where you build them. Let's listen to the Harwood mayor who came on the network. Great. [00:03:24] Speaker 5: I have heard from Applied Digital. They were very happy with the vote. And I will say this. I've said this publicly multiple times. They've been great to work with. They've been honest. They've been up front. And they've done a lot for our city so far, even though we're not collecting the property tax yet. They've done a lot for our city. [00:03:41] Speaker 1: So when you hear that, that's certainly welcome. [00:03:44] Wes: I think that is a great example of how we partner with the communities. And again, back to my point of how this business is, in a real estate business, it's very local. And so the experience they've had with us, if you go to Ellendale, North Dakota, where our first facility is, their experience, you're going to find something really similar. We partner with the community. They see the benefits. We do, you know, the real pain of doing these for the community is actually during the construction. It's not, you know, in Ellendale, North Dakota, we've lowered the electricity bills for the rate payers there. Lowered them. Lowered them. Over the past five years, we've saved rate payers over $45 million. And I think that number is north of 50. That was just the last count. So we save them money on their electricity. We don't use a meaningful amount of water. So those things are always the big hot button issues that are just not really what the negative impact is. The negative impact is we're in a small town. There's a lot more traffic, you know, for the construction site. There's a big construction site. So those are the real negatives of, and we manage that extraordinarily well. We try to say, okay, when is the, you're in a town of a thousand people. When is the traffic time? It's school drop off and pick up. So we work around that, but we partner really well with the communities. And you saw that, I mean, not only was that, that initiative defeated, it was 76% of the vote. So overwhelmingly defeated because that's the experience they've had with us. [00:05:06] Speaker 1: I do want to say, though, that the hit to your stock started before election day. You know, investors whacked the stock this week after you revealed that 800 megawatts still need financing. But I'm looking at the spend here. And if you look, your interest rates, your interest expenses on your current debt are around 77 million. That's more than the base rent that you have of 66 million. That has nothing to do with Democrats or Republicans. The math for investors isn't quite mathing. [00:05:35] Wes: So I always tell people the way you have to think about our business, we take all the spend up front. We take all the debt up front. And then when the building turns on, you get these big stair steps up in revenue and earnings. And so we have a lot of debt that is on the balance sheet already for revenue that will come in the future. And this isn't that far out, right? You've already started to see it in our revenue. And we're up, you know, 300 and something percent in revenue. Impressive, impressive. And you'll see that ramp just continue. [00:06:04] Speaker 1: Well, investors are watching. We're watching. Thank you for coming on on quite a wild week for everybody in your industry. Absolutely. Thanks for having me. See you, Wes.