![Morgan Stanley Says Crypto Miners Could Benefit by Becoming Data Centers](https://news7g.com/wp-content/uploads/2024/08/107389671-17108762062024-03-01t195610z_1004617346_rc2mht9utp1q_rtrmadp_0_usa-power-cryptocurrency-780x470.jpeg)
As tech companies consider how best to scale up their data center construction over the next few years, Morgan Stanley has identified what it sees as an emerging, underappreciated opportunity: converting bitcoin mining sites into data centers. “We believe we are at a very early stage in terms of investor awareness of the growth potential derived from converting bitcoin mining facilities into HPC data centers,” analysts led by Stephen Byrd said in a note Wednesday, referring to high-performance computing. “We think it is reasonable to expect a REIT structure to be the ‘end game’ for converted bitcoin mining assets.” [data centers]and the upside potential could be much larger than the valuation.” The Wall Street investment bank’s calculations are as follows: The indicative valuation of a bitcoin mining facility in the United States ranges from $2 to $3 per watt of capacity, while the value to a hyperscaler — like Microsoft, Alphabet, and Amazon — of the three years of time saved to power a new data center is more than $10 per watt. Over the past few months, Morgan Stanley has seen more Bitcoin miner management teams focus on such a transition opportunity, from about 50% to about 80%. Byrd said these management teams have partnered with data center developers and tech hyperscalers who say the feedback on demand and pricing has been positive. The opportunity is even more appealing to investors, given the likelihood of a significant shortage of new data centers between 2025 and 2027, due to lack of available grid connectivity. Bitcoin mining companies that Morgan Stanley thinks could benefit from this opportunity include Bitdeer Technologies Group, Cipher Mining, TeraWulf, Iris Energy and Galaxy Digital (None of those stocks were mentioned in Morgan Stanley’s research.) Each stock is rated a buy by analysts polled by FactSet, and their consensus price targets suggest significant upside potential. Cipher Mining, a potential standout, has been actively pursuing data center conversion opportunities for its hyperscaler clients over the past several months, according to Morgan Stanley. “We like management’s business judgment and focus on achieving the best risk-adjusted outcome for shareholders,” the bank said in a 19-page note. Cipher “has large sites that appear well-suited to the conversion opportunity and the company has significant expertise in site development.” Cipher shares are down about 3% for the year and more than 35% over the past month, as the cryptocurrency market plunged in early August. The company’s second-quarter earnings and revenue, released last week, also came in worse than analysts’ estimates. Analysts polled by FactSet expect the stock to rise 79% over the next year, based on consensus price targets. Infrastructure-focused bitcoin mining company Terawulf could also announce data center development deals, according to management commentary, according to Morgan Stanley’s research team. “The company has some of the most attractive data center sites and management has deep expertise in developing complex power projects, which we view as a plus. We also believe management has deep expertise in developing optimal financing strategies,” Byrd said. However, he noted that the company’s data center potential may be limited due to its smaller potential footprint in terms of megawatts. The stock is up 92% this year, but is down about 29% since hitting a 52-week high in mid-July. Bitdeer Technologies Group is another potential bitcoin mining company that could enter the AI data center market. The company’s shares are up 8% so far this week, but have fallen this month after the company sold $150 million in convertible senior notes due in 2029. The stock is down 29% this year, but analysts polled by FactSet expect potential upside of nearly 111%. Bitdeer posted better-than-expected earnings on Aug. 12, but missed analysts’ revenue estimates. Bitdeer lost 14 cents a share in the second quarter, narrower than the loss of 36 cents a share in the same period last year, while revenue of $99.2 million missed the FactSet revenue consensus.