Steam turbines will begin powering AI workloads in 2028.
Designer, builder and operator of popular data centers Applied digital (APLD +17.97%) reported incredible growth in the second quarter of fiscal 2026. Revenue soared 250% year-over-year to $126.6 million as demand for AI data centers exploded.
Applied Digital has delivered the first 100 MW of AI computing capacity to its Polaris Forge 1 campus, which will ultimately provide 400 MW of total capacity for CoreWeave. The company also signed a 15-year lease with a hyperscale for 200 MW of AI capacity on the Polaris Forge 2 campus, a deal expected to generate approximately $5 billion in revenue.
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A major bottleneck for the AI industry
Even if the demand for AI data centers does not slow down, the AI industry faces a difficult problem. The bottleneck is not GPU or buildings, but the production of electricity. AI data centers require enormous amounts of power, and the power grid simply can’t keep up.
Tech giants, hungry for more AI computing capacity, have gotten creative in their attempts to solve this problem. Several tech giants are exploring nuclear power, with Metaplatforms sign a 20-year contract with Constellation Energy last year to restart a nuclear power plant in Illinois. Unfortunately, it will likely take years to bring significant nuclear power generation capacity online.
Another solution is to use gas turbines installed directly in AI data centers. This avoids the problem of waiting for sufficient power generation capacity to come online from electric utilities. Some companies have even installed retired commercial aircraft engines to run AI servers.
Although gas turbines are a great solution, a severe shortage threatens to limit how quickly Applied Digital and other data center builders can expand their footprints. John Ketchum, CEO of NextEra Energynoted last June that a new gas-fired power generation facility would not come online until 2032 due to a shortage of gas turbines. Major gas turbine manufacturers estimated early last year that customers could wait 7 to 8 years for new gas turbines.
Wes Cummins, CEO of Applied Digital, described the problem during the second quarter earnings call: “If you’re in line right now for a traditional natural gas turbine, if we put an order in today, we probably won’t get delivery until 2031, 2032 for that equipment.” We need electricity sooner than that. »
Applied Digital aims to increase its capacity to 5 gigawatts over the next five years, and the company is currently in advanced discussions for 900 MW of capacity. For this to happen, the company must solve its electricity generation problem. On the same earnings call, Cummins outlined a potential solution.
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Looking Back to Solve AI’s Hardest Problem
Applied Digital has signed a limited notice to proceed Babcock and Wilcox in November to provide 1 GW of electricity. B&W has been in business since 1867 and specializes in the design and manufacturing of steam turbines. Steam turbines have been around for over a century and are now poised to be used to power the AI revolution.
B&W will design and install multiple 300 MW natural gas-fired power plants, each equipped with boilers and steam turbines, at one of Applied Digital’s AI data center campuses. The plan is for the new power generation capacity to come online in 2028, years before standard gas turbines can be installed. The steam turbine generator sets will be supplied by Siemens Energy.
“It uses steam turbines, think boilers in coal plants, but we use natural gas. This company has actually done a lot of conversions from coal to natural gas over the last decade. And what it allows us to do is get into the market sooner,” Cummins said on the earnings conference call.
If Applied Digital has the capacity to bring AI data centers online 3 or 4 years earlier than the competition, the company can now sign large multi-year contracts to attract hyperscalers desperate to increase their capacities. This competitive advantage won’t last forever, but it appears Applied Digital is the first data center company to turn to steam turbines for power generation. The deal with Applied Digital marked B&W’s entry into the AI data center market.
The demand for computing capacity for AI is not slowing down. Applied Digital’s 5 GW target is certainly realistic given the demand environment, but ensuring sufficient power generation capacity was likely a challenge. By turning to century-old technology, the company won’t need to wait until the 2030s to bring new AI data centers online and continue growing revenue at an impressive rate.