AI Data Center Stocks Could Bounce Hard. Here’s What Would Make It Last.

At the end of Part One, I said I wanted to see one of these data center developers post good news, rally on it, and hold the gains into the close. The day after its October 7 earnings call, Applied Digital (APLD) finished basically flat while Cipher Digital (CIFR) fell 7% and TeraWulf (WULF) dropped 5%.

That’s not exactly a victory lap. But in this tape, breaking even while your neighbors lose a nickel counts as a pretty good day. And yes, I see Applied Digital drifting back toward the $20 area where buyers stepped in last November and again in April. But let’s save the charts for another day and stick with the business.

3 Keys to Better Data Center Price Action

I don’t think anybody’s arguing about whether AI is growing. The real question is what has to change for the guys building these turnkey data centers to look like a good deal again.

In my view, it comes down to three things. Cheaper money, customers who keep writing big checks, and buildings that actually get the power turned on. If those start breaking the right way, we’ll see it in the price action. And a lot of it gets tested over the next five weeks.

Cheaper Money

Start with the money, because that’s where this whole mess started. The September inflation report comes out October 14, and the Fed wraps up its next meeting October 28. Traders on Kalshi and Polymarket put the odds of a hold around 84%.

The number I really care about isn’t the Fed’s, though. It’s the 10-year Treasury, which went from 4.48% on July 1 to 5.27% by October 6. That’s the benchmark investors use to discount future cash flows, like figuring out what 15 years of rent is worth today. If the 10-year drifts back under 5%, these stocks get slightly easier to own, even if the Fed never lifts a finger.

Then there’s the borrowing itself. I want to know who’s paying for the next building and what it’ll cost. Applied Digital’s out in front here. Last November it sold $2.35 billion of senior secured notes at 9.25%. Its next two deals, $2.15 billion in March and $1.59 billion in June, came in at 6.75% and 7%. That’s a big drop in borrowing costs for the same kind of building. For its next campuses, it’s lined up a $5 billion preferred stock deal with Macquarie, with project loans on top, and it’s already drawn the first $112.5 million.

Now, it’s silly to pretend Applied Digital will never sell stock to fund its growth. It has a shelf registration on file, and last year it set up a $200 million at-the-market program to sell shares directly into the market. But its latest filing shows it didn’t sell a single common share for cash last quarter. The Macquarie money lets it keep building without leaning on its stock every time it bounces, and that’s been a big knock on this whole group.

Sentiment’s still a problem, too, and the best read I’ve got is the IPO calendar. If Wall Street’s still willing to write big checks for brand-new AI infrastructure companies, the guys already trading get some breathing room. Nscale is lining up an NYSE listing at up to $35 billion, and SB Energy is shooting for $50 billion or more later this month. If those deals price well and trade up, big funds have their appetite back.

Writing the Checks

Money’s only half of it, though. The developers still need someone to sign the lease. Alphabet (GOOGL) reports October 28, Meta’s (META) expected the same night, and Microsoft (MSFT) and Amazon (AMZN) follow that week. Bank of America (BAC) figures the biggest cloud companies will spend about $859 billion this year building out, and for the turnkey developers, the more, the better.

Plenty of that goes to chips and to buildings the giants own themselves. But as long as the hyperscalers and frontier labs keep spending at redline, investors will see these developers as the ones catching the overflow. If one of those CEOs says they’re still short on space and still leasing from outsiders, that’s a win for the whole group.

Applied Digital gave us a taste of that on its earnings call. Management expects to sign about 250 more megawatts of leases by year-end, and it’s pushing for rents at least 15% above its earlier deals. Nothing’s signed yet, but if those contracts land anywhere close, it suggests landlords have pricing power.

Turning the Power On

Of course, none of those leases pay much until the lights come on, and that’s the third piece. Applied Digital says it’ll put more than 600 megawatts into service over the next 12 months, up from 250 over the past year. Cipher’s first halls at Barber Lake are due online this quarter. Investors don’t trust that power will ever flow. So every data center that opens on time turns a promise into a rent check and boosts sentiment across the group.

Applied Digital’s numbers show why this matters. Its AI data center business brought in $262.6 million last quarter, but $183.5 million came from preparing the space for tenants. Rent was only $65.8 million, about a quarter of the total.

There’s nothing wrong with getting paid to build out the space. But that money dries up once a building’s finished. What sticks around is the rent, and on a 15-year lease, that’s the part investors really care about (at least for now). As more buildings open and rent becomes a bigger slice of the pie, we spend less time guessing what the next construction job will bring in. That makes the company easier to value, and the stock a lot easier to own.

How Will We Know When the Market Starts Believing It?

Watch how these stocks handle good news. With short positions running between 22% and 31% for stocks like APLD, Iren Ltd. (IREN), and WULF, you can expect to see sudden 7%-10% short-covering rallies on no news, but I don’t read much into those.

I want to see a stock announce a funded lease, hold the gain, and shrug off the next bad day for the group. When that starts happening, it usually means the new buyers plan to stick around. My guess is the developer closest to collecting rent does it first, and right now that may be Applied Digital.

I’m an optimist here. AI’s still early, and right behind it you’ve got self-driving cars and robots, all of them running on computing power that lives in a data center somewhere. I don’t think demand is the problem. The problem is the cost of money and how long it takes to turn on the power. Give these guys a little help on rates, a few signed leases at higher rents, and some real speed to power, and I think buyers come back faster than most people expect.

Markets are funny about news. When these stocks are falling, everyone reads every headline bearishly. When they’re ripping, the same crowd explains away the bad stuff.

I made a living for years as a day trader who knew next to nothing about the companies I traded, so I’ll never knock the chart. But if you want to own these stocks for longer than a few days, you need conviction, and conviction comes from knowing the business. That’s why I’m saving the charts for another day. Learn the business so you know what to own, then let the chart tell you when.

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At the time of publication, Byrne had no positions in any securities mentioned.