Cipher, TeraWulf Look Cheap on AI Data Center Contracts
Key Points
- NEW YORK — Compass Point analysts Michael Donovan and Ed Engel determined that Applied Digital (APLD), TeraWulf (WULF) and Cipher Mining (CIFR) are trading below the value of their signed artificial intelligence data center contracts, suggesting the market is underestimating these companies' rental income potential.
- The analysts developed a valuation framework that separates the value of long-term AI leases already under contract from projects yet to secure customers. By calculating future rental income from signed contracts after accounting for remaining facility construction costs, then comparing that figure to each company's enterprise value, Compass Point identified a significant disconnect between contracted business and current market valuations.
- According to the report, Applied Digital, TeraWulf and Cipher Mining show the largest gap between their contracted business and current valuations. Compass Point argues the market is assigning little to no value to additional AI capacity awaiting lease agreements, despite the potential for those projects to generate significant rental income once operational. The analysts advocate valuing these companies as landlords generating steady rental income rather than traditional bitcoin miners dependent on volatile cryptocurrency prices.
Execution Will Determine Stock Performance
Core Scientific (CORZ) and Riot Platforms (RIOT) occupy different positions in the sector. Compass Point found that Core Scientific's existing contracts are already largely reflected in its current valuation, meaning further stock appreciation will likely depend on signing additional customers. Riot, by contrast, is valued more heavily on future potential than current lease income, with investors placing a premium on its Corsicana campus and broader AI development pipeline despite relatively limited contracted capacity today.
Read Next
Fed Chair Communication Strategy Raises Transparency Questions
9 days ago
Dow Jones Futures Trigger Sell Signal; Apple Earnings, Iran News, Fed Meeting Loom
10 days ago
The transformation of former bitcoin mining operations into AI data centers represents a fundamental shift in how these companies generate revenue. Unlike bitcoin mining, where earnings fluctuate with cryptocurrency prices, long-term leases with investment-grade customers provide steadier, more predictable cash flow. Many former mining companies possess abundant power supplies and existing electrical infrastructure ideal for AI and high-performance computing workloads requiring massive computing capacity.
Compass Point emphasized that the next two years will be critical for the sector as companies transition from announcing AI infrastructure deals to delivering them. As facilities come online, tenants move in and rent payments commence, investors will gain clearer visibility into the recurring cash flow these facilities can generate. Companies executing successfully on their pipelines could receive valuations more aligned with other income-producing infrastructure assets.
Related coverage: Fed Chair Communication Strategy Raises Transparency Questions
The broader group has already become one of the market's strongest AI-related trades. Over the past year, shares of several former bitcoin miners climbed sharply following partnerships with hyperscalers and AI companies seeking large amounts of power and computing capacity. However, returns have varied considerably as investors weighed construction timelines, financing requirements and the pace of customer signings.
Following recent pullbacks in the group, Compass Point suggested the market may be entering a new phase where execution matters more than announcements. As signed contracts begin producing revenue from operational facilities, investor focus will shift from future potential to actual cash flow generation. The analysts expect project completions and rent commencements over the next two years to become the main drivers of stock performance for companies in this sector.
Why this matters: As these companies transition from announcing AI infrastructure deals to collecting rent from operational facilities, those with significant contracted revenue but depressed valuations could experience substantial stock appreciation if they execute on construction timelines and secure tenant occupancy.
Market Outlook
Compass Point expects TeraWulf, Cipher Mining and Applied Digital to outperform as facility completions and rent commencements drive earnings visibility over the next two years. Execution on contracted projects rather than deal announcements will become the primary valuation driver, potentially rewarding companies with large signed leases currently undervalued by markets.
Sources: AP, Reuters, ESPN, Bloomberg, BBC and other international news outlets.
Disclaimer: This article is for informational purposes only. Content is based on publicly available news sources.
Markets Desk
The NewsOracle Markets Desk covers stock markets, cryptocurrency, economic policy and breaking financial news from Wall Street and global exchanges.
Latest coverage: Cryptocurrency
