Analysts at research and brokerage firm Bernstein have countered short-seller Culper Research’s claims about the upside potential of AI in IREN and the notion that Bitcoin mining is “worthless.”
IREN’s stock price plunged more than 13% at the close of trading Thursday after Cupler’s report, which claimed IREN’s stock was overvalued, ranging from 52% to 79% below its current price. Culper valued the company’s cryptocurrency mining operation at $0 to $100 million.
In a note to clients late Thursday, Bernstein analysts Gautam Chhugani and Mahika Sapra said much of Culper’s brief was based on IREN’s Childress site and its criticism that it was not suitable for AI operations. But the Bernstein analysts countered that the Childress site is primarily dedicated to scaling bitcoin mining, and that its existing power and data center infrastructure is functioning well.
“IREN did not claim that Childress’ Bitcoin mining site was planned to be converted to AI (CoreWeave-style). Furthermore, 65% of the fair value is based on Bitcoin mining, while the remaining 35% is based on AI/HPC. Therefore, we completely disagree with the assertion that Bitcoin mining is worthless,” Chhugani and Sapra wrote.
It’s worth noting that two days before Culper’s report, Bernstein analysts began their assessment with an Outperform rating on IREN, citing the company’s hybrid Bitcoin mining and AI data center strategy.
Bernstein analysts said IREN’s AI potential will primarily come from its massive 1.4 GW pipeline facility in West Texas, which could monetize land and grid interconnection, and potentially build AI data centers from scratch as construction on the facility has not yet begun.
In response to Culper’s additional criticism that IREN’s Poolside.AI GPU deployment would operate at cooler temperatures in British Columbia and that IREN’s air-cooled design would fail in hotter Texas, Chhugani and Sapra said that if IREN were to monetize the 1.4GW site, “it would be built as a greenfield with all the bells and whistles you need for an AI data center: power redundancy, liquid cooling, rack density.” The Poolside GPU cloud is just one more example of how IREN knows how to run an HPC data center.
Finally, responding to Culper’s assertion that IREN spent $1M/MW on its Childress facility and other mining facilities, while AI/HPC would need $12M/MW to build out its sites, the Bernstein analysts said, “IREN’s current $1M/MW capex metric is entirely reflective of Bitcoin mining capex, so comparing it to AI/HPC capex is meaningless.”
“Unless Culper is claiming that all Bitcoin mining operations are worth zero, he is ignoring the fact that Bitcoin is in a new institutional cycle driven by issuance. Bitcoin Bitcoin
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The global asset manager’s ETF (the most successful ETF of all time, with $15 billion in inflows within 6 months of launch) expects Bitcoin to continue its upward trajectory, hitting new highs by the end of 2024 and heading towards $200,000 by 2025. Given IREN’s estimated cost of producing Bitcoin of around $40,000, it is unreasonable to assume perpetual negative cash flow from Bitcoin mining,” Chhugani and Sapra concluded.
The block has reached out to Culper and IREN for comment.
Block’s contract to supply mining chips to Core Scientific is estimated to be worth $300 million.
On Tuesday, Bernstein analysts initiated coverage of Core Scientific, giving it an Outperform rating, given its similar hybrid Bitcoin mining and AI data center strategy. In June, Core Scientific signed a series of 12-year contracts with AI hyperscaler CoreWeave.
On Wednesday, Block, co-founded by former Twitter CEO Jack Dorsey, announced it had signed a deal with Core Scientific to supply new 3-nanometer ASIC mining chips that will deliver a hash rate of around 15 exahashes per second (EH/s) and be more energy efficient than current designs.
Specifics on the value of the deal were not provided at the time, but in a separate note to clients yesterday, Chhugani and Sapra estimated the deal would be worth around $300 million if priced in line with current competitors. “However, the specifics will depend on the exact commercial partnership, as Core Scientific will be positioned as a development partner in the deal and the expected efficiency improvements compared to Bitmain’s latest generation miners,” they noted.
Block’s new chips represent a breath of fresh air to a supply chain that has historically been dominated by three China-based companies: Bitmain (with over 80% market share), MicroBT, and Canaan.
Analysts argued that the new competition in Bitcoin mining chips could help miner operators’ economics and keep equipment costs down. “As U.S.-based Bitcoin miners grow in size, they will likely look to diversify their supply chains away from China, and Block’s proposal, which is the latest generation of chips manufactured in the U.S., could be adopted by miners other than Core Scientific,” they added.
Gautam Addani holds long positions in various cryptocurrencies.
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