Applied Digital ( APLD ) said on Monday it has entered into two 15-year leases with CoreWeave ( CRWV ), a specialized cloud services provider backed by Nvidia ( NVDA ), which will generate about $7 billion in revenue for the data center operator over the lease period.

WHY IT'S IMPORTANT

The deal could prove to be a major lifeline for Applied Digital ( APLD ), which has been facing challenges in the data center hosting sector as it transitions into a data center real estate investment trust.

The company's shares surged by 17% in premarket trading following the lease announcement.

KEY QUOTES

"These leases solidify Applied Digital's ( APLD ) position as an emerging provider of infrastructure critical to the next generation of artificial intelligence and high-performance computing," CEO of Applied Digital ( APLD ), Wes Cummins, said in a statement.

"Through these newly signed long-term leases with CoreWeave ( CRWV ), we are taking a step forward in our strategic expansion into advanced compute infrastructure."

CONTEXT

The emergence of new cloud service providers, known as "neoclouds" like CoreWeave ( CRWV ), focuses on renting Nvidia's ( NVDA ) highly sought-after chips to software developers.

Leasing data center infrastructure from companies like Applied Digital ( APLD ) helps reduce some of the financial burden of providing AI-centric cloud services.

CoreWeave's ( CRWV ) shares were up close to 4%.