AI-centric Bitcoin Bitcoin
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According to Bernstein Research and Brokerage analysts, miners such as Core Scientific, IREN, and Terawulf have outperformed their “pure-play” competitors in terms of stock price, thanks to their strong conviction in their data center theories, even amidst Bitcoin price volatility.
Gautam Chhugani, Mahika Sapra, and Sanskar Chindalia wrote in a note to clients on Monday that AI-driven miners have outperformed due to increased investor confidence in their business model diversification, better valuation multiples, more predictable revenue streams, and greater flexibility in navigating the often volatile Bitcoin market.
Analysts said that while the hashrate growth of AI-focused operators may be slower overall than that of pure Bitcoin miners, AI-focused operators are scaling their data center infrastructure to keep up, providing additional opportunities in the fast-growing AI sector.
But IREN is the exception, according to Bernstein, as the fastest-growing miner by hash rate, up four-fold year-over-year. IREN plans to double its GPU fleet and hash rate by December, and expects AI cloud services to account for about 10% of revenue by the end of the year.
Bitcoin Miners vs. Bitcoin YTD Returns. Image: Bernstein.
Analysts note that large public Bitcoin mining aggregators such as Marathon, Riot Platforms, and CleanSpark also hold significant amounts of Bitcoin on their balance sheets and are selling a smaller percentage of the coins they mined this year compared to 2023, retaining 100% of their August production. “This shift indicates that large miners are willing to invest in capital expenditures and expand their share of the Bitcoin mining market by raising capital or accepting dilution rather than liquidating their Bitcoin holdings,” Chhugani, Sapra, and Chindalia write. “Right now, they see AI as a distraction and are not shifting their capabilities in the same direction.”
In contrast, according to Bernstein, miners focused on AI data centers often do not hold Bitcoin on their balance sheets due to internal policies or debt covenants, and routinely sell 100% of their production to fund their operations. “These miners are not willing to take a price view on Bitcoin, do not prefer Bitcoin as a government asset, and see themselves as data center operators,” the analysts added.
Bitcoin held by miners as a percentage of market cap. Image: Bernstein.
According to The Block’s Bitcoin Price Page, Bitcoin is currently trading at $59,907. The most important cryptocurrency has fallen about 20% since hitting an all-time high of nearly $74,000 in March. However, it has maintained a 44% gain this year.
‘Significant Upside Potential’ for Public Bitcoin Miners
While AI-focused companies may be outperforming their current stocks, Bernstein expects pure-play public Bitcoin miners to benefit as the Bitcoin cycle accelerates once the current price levels bottom out and U.S. election uncertainty resolves.
“Bitcoin miners have seen significant upside in the power portfolio they control. They operate ~6GW of power capacity globally. Bitcoin miners can make a stronger case for a revaluation by focusing on an aggressive ‘power’ strategy and pushing the boundaries of power efficiency (~90% discount to traditional data centers),” Chhugani, Sapra, and Chindalia write. “There is an upside to investors valuing mining assets as efficient ‘power shells’ with data center capabilities, and there is likely to be a larger upside in the Bitcoin price cycle.”
Bernstein rates Riot stock as Outperform with a price target of $22, compared to Tuesday’s closing price of $7.10. CleanSpark rates it as Outperform with a price target of $30, compared to $9.15. Marathon rates it as MarketPerform with a price target of $23, compared to $15.87.
In terms of AI-focused Bitcoin miners, Bernstein rates Core Scientific as an Outperform with a price target of $17 (vs. its current share price of $11.48), and IREN as an Outperform with a price target of $26 (vs. yesterday’s close of $8.03).
Bitcoin Miner Ratings. Image: Bernstein.
“Bitcoin miners can make a case for better management of their power resources and more strategically optimize the returns on their power portfolios between AI and Bitcoin cycles, thereby increasing value,” the analysts concluded.
Gautam Chhugani holds long positions in various cryptocurrencies. Bernstein’s affiliate acts as a market maker or liquidity provider in Riot Platforms’ debt securities.
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