Applied Digital Confirms $3.2 Billion Alabama AI Campus as Waterway Concerns Follow Abatement Vote

Tuscaloosa County's economic development authority voted on September 24 to grant Applied Digital Corporation a 20-year non-educational tax abatement worth approximately $314.5 million for its Delta Forge 2 data center campus near Brookwood, Alabama — clearing the final major regulatory step for a $3.2 billion AI infrastructure build backed by a signed 15-year take-or-pay lease. The deal, valued at $5.2 billion over its base term and up to $12.7 billion with all renewal options exercised, adds another anchor to Applied Digital's growing network of purpose-built AI campuses across the American South and stands as one of the largest single-site data center commitments ever made in the state of Alabama.

The campus, which will span nearly 1,300 acres and deliver 210 megawatts of power capacity to AI accelerator clusters, is expected to be completed by the end of 2028. TCEDA's official announcement named Kayvens LLC, a Delaware-registered entity, as the long-term tenant — though Applied Digital's own public filings continue to describe the counterparty only as a "US based high investment-grade hyperscaler." The vote landed in a county where a federally protected waterway sits close to the build site, and where community groups have spent months fighting a process they describe as opaque — raising a set of tensions that will accompany virtually every major AI campus decision in the US South for the next decade.

The Take-or-Pay Structure That Makes AI Campuses Financeable

To understand why Applied Digital (Nasdaq: APLD) can raise billions to build data centers for unnamed tenants, it helps to understand the take-or-pay lease. Unlike traditional real estate agreements, take-or-pay contracts require the tenant to pay for the full contracted capacity — in this case, the equivalent of 210 megawatts — every month, whether or not that capacity is actually being used. The risk of underutilization falls entirely on the hyperscaler signing the agreement, not on Applied Digital as the landlord.

That structure converts what would otherwise be a speculative construction gamble into something closer to a fixed-income instrument. Once the lease is signed, Applied Digital can model the $5.2 billion in base revenue against the $3.2 billion construction cost, secure project financing, and proceed without depending on guesses about AI workload demand. The company calls this approach its "AI Factory" model — essentially a tower-company logic applied to GPU compute: build the infrastructure, operate it reliably, and let the tenant worry about what runs on it.

The distinction matters for risk assessment: the financial strength of the take-or-pay commitment depends entirely on the credit quality of the entity actually obligated to pay. Applied Digital has not publicly confirmed Kayvens LLC's ownership or financial backing beyond its "investment-grade" characterization.

Applied Digital's broader portfolio now stretches across five campuses with approximately $36 billion in contracted base-term revenue. Delta Forge 1, located in Boyce, Louisiana — not North Dakota, as some initial reports suggested — is a 430-megawatt campus whose lease was signed in April 2026 for $7.5 billion base across 300 megawatts of contracted capacity over 15 years. Applied Digital's North Dakota campuses operate under the separate Polaris Forge brand; Polaris Forge 1 in Ellendale is leased to CoreWeave. The geographic branding distinction reflects different power cost environments, climate profiles, and community relations contexts.

Waterless Cooling and Why Alabama's Climate Makes It Relevant

Applied Digital's technical differentiation for Delta Forge 2 centers on what it calls "proprietary waterless cooling" — a closed-loop thermal management system that captures heat at the processor level, transfers it through sealed fluid circuits to dry heat exchangers, and recycles the fluid back without consuming water in an open evaporative loop.

Conventional large-scale data center cooling relies on evaporative towers that consume millions of gallons of water annually, proportional to compute density. At 210 megawatts, a conventionally cooled facility could draw tens of millions of gallons per year from local water sources — a politically and legally sensitive proposition when the adjacent waterway is Hurricane Creek, a tributary of the Black Warrior River that carries federal protections under the Clean Water Act. TCEDA's own community requirements mandate that the Brookwood facility use the closed-loop system rather than conventional evaporative cooling.

Applied Digital has not yet released an independent audit of the system's zero-water claims. It does not mean the campus has no environmental footprint — impervious surfaces across roughly 160 acres of a nearly 1,300-acre site still affect stormwater runoff and heat island dynamics near the creek — but it removes the most direct threat that has blocked industrial water users in sensitive watersheds elsewhere.

At full utilization, a 210-megawatt campus drawing from Alabama Power's grid — a mix that includes natural gas and legacy coal generation — would produce an estimated 715,000 metric tonnes of carbon dioxide equivalent annually based on southeastern US grid carbon intensity averages. Applied Digital has not announced renewable energy procurement agreements for Delta Forge 2.

Hurricane Creek and the Community Opposition the Tax Vote Couldn't Quiet

Hurricane Creek flows through the proposed campus area and sits on the federal 303(d) list of impaired streams, meaning it carries Clean Water Act protections from further degradation. Environmental advocates — including Hurricane Creekkeeper John Wathen, the Black Warrior Riverkeeper, and the Alabama Rivers Alliance — raised formal objections to the site selection well before the TCEDA vote, citing the creek's protected status, its role as habitat for species under the Endangered Species Act, and concerns about the adequacy of stormwater management across a 1,300-acre cleared and developed site. Construction stormwater is permitted to discharge into Hurricane Creek and several of its unnamed tributaries under a permit Alabama's Department of Environmental Management approved in July 2026.

Those objections did not stop TCEDA from approving the abatement, but they created a negotiating context that produced something genuinely novel for Alabama: a mandatory community benefits agreement attached to the deal. Applied Digital and TCEDA together committed $270 million in payments over 20 years — approximately $13.5 million annually — distributed among the City of Brookwood, Tuscaloosa, Northport, the county commission, the county road commission, and DCH Health System. TCEDA described it as the first data center development in the state to include such a community payment structure.

The $131.5 million in projected school tax revenue — preserved because the abatement is explicitly non-educational — provides the political justification for the deal's supporters. Critics countered that the NDA wrapping the lease documents prevented community members from independently evaluating whether the numbers reflected a genuine negotiation or a figure Applied Digital was willing to absorb regardless of community pressure.

The tension is not unique to Tuscaloosa County. Every major AI campus deal in the US South involves some version of this asymmetry: the company holds the lease agreement and the financial model; the community holds only the tools of public process. When those tools include an NDA, the outcome of any negotiation is largely predetermined by the information each side can bring to the table.

Alabama's Large-Load Power Law Arrives in One Week

One week after the TCEDA vote, Alabama's new large-load power cost law — Act 2026-610, passed as Senate Bill 270 and signed by Governor Kay Ivey — takes effect on October 1, 2026. The legislation requires the Alabama Public Service Commission to determine whether large data center electricity contracts recover the full incremental cost of serving those customers, preventing those costs from being shifted to residential ratepayers.

For Delta Forge 2, the practical consequence depends on when Applied Digital's power interconnection agreements were finalized and whether those agreements will be grandfathered under the new regime. The lease was signed in June 2026, and Applied Digital has not clarified whether its power cost assumptions are based on pre-law or post-law interconnection rates. Alabama Power previously confirmed in regulatory filings that any contract submitted before the October 1 effective date would be evaluated under prior rules. If a significant portion of the campus's power infrastructure costs falls under the new law's scope, it would add to the project's already substantial capital requirement.

The law's timing also creates a subtle competitive dynamic for new entrants. Any AI campus announced after October 1 will need to price its power capacity assumptions against the full-incremental-cost standard — potentially making Alabama a less attractive destination for the next generation of AI landlords than it was for Applied Digital when the Delta Forge 2 agreement was being structured.

Where Delta Forge 2 Sits in the AI Infrastructure Buildout

Applied Digital's landlord model occupies a distinct niche in a US AI infrastructure landscape where hyperscalers are simultaneously building their own campuses. Meta's Hyperion project in Louisiana represents the owner-operated pole of the spectrum — billions in company capital deployed directly, no landlord intermediary, maximum operational control. Applied Digital's model represents the opposite: zero hyperscaler upfront capital, maximum contractual commitment over 15 years, and a landlord who handles site selection, construction risk, and campus operations.

Neither approach is inherently superior. Owner-operated campuses give the hyperscaler flexibility to change the hardware stack, experiment with cooling approaches, and avoid paying a landlord's margin. Take-or-pay landlord campuses let hyperscalers scale compute footprint without consuming balance-sheet capital, which matters during a period when hyperscalers are collectively committing hundreds of billions of dollars annually to AI infrastructure while competing for the same construction labor, electrical equipment, and interconnection slots.

The risk that Applied Digital's model faces in later lease cycles is straightforward: if the AI compute market consolidates around a smaller number of very large owner-operators, or if the hyperscalers that have signed take-or-pay deals build their own parallel campuses and let existing leases expire, Applied Digital's ability to sign the next generation of 15-year commitments at current economics becomes uncertain. The approximately $36 billion in contracted base revenue is real; the question is what gets signed when those contracts come up for renewal beginning in the 2040s.

For now, Delta Forge 2 is the most concrete data point in a pattern: US hyperscalers are willing to commit to billions in long-term take-or-pay obligations for infrastructure they do not own, in states where the regulatory and tax environment has been made favorable, near communities whose concerns are managed through negotiated benefits packages rather than structural influence over the decision. Whether that pattern produces the AI compute capacity the US economy needs, or whether it concentrates economic risk among communities while concentrating financial returns among a small number of investors and landlords, is a question that Alabama's local governments and environmental advocates are among the first in the country to be forced to answer in real time.

The next milestone worth watching is whether Applied Digital secures full environmental permitting for the Hurricane Creek adjacent site — and whether that process triggers the level of federal review that the creek's protected status technically requires.