Key Points
Bitcoin miners may earn more by using their power sites for AI data centers.
Long-term AI leases can make revenue more predictable.
Construction costs and new share sales could reduce investor returns.
Bitcoin (CRYPTO: BTC) mining revenue can rise or fall with Bitcoin prices, competition from other miners, and electricity costs. TeraWulf (NASDAQ: WULF) is trying to reduce revenue volatility by leasing data center infrastructure to artificial intelligence (AI) customers.
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TeraWulf recently signed a 20-year agreement to provide Anthropic with roughly 401 megawatts of AI computing capacity. The lease is expected to generate approximately $19 billion of contracted revenue, with the first facilities scheduled to begin operating in late 2027.
However, with TeraWulf stock up nearly 242% in the past year (as of July 31), investors must determine how much of that opportunity is already reflected in the share price.
Why Bitcoin miners are turning to AI
Bitcoin-mining machines cannot be converted into AI servers. The real opportunity lies in the power infrastructure some miners already control, including land, grid interconnections, substations, electrical systems, and cooling equipment.
Bitcoin miners that already control land, grid connections, and substations may be able to deliver AI capacity faster than developers starting from scratch. But only a few can make the shift, because AI data centers need highly reliable power, advanced cooling, fast networking, and substantial financing.
TeraWulf is already making progress. The company's 60 megawatts of operating AI and high-performance computing (HPC) capacity generated $21 million of lease revenue in the first quarter, compared with $13 million from Bitcoin mining. HPC leasing accounted for about 62% of total revenue.
TeraWulf's opportunity can increase expenses
The Anthropic lease is expected to generate about $19 billion over its initial 20-year term, averaging $950 million annually. However, this is not current revenue or profit. Anthropic will begin paying rent only as TeraWulf delivers each phase. Additionally, construction, operating, and financing costs will reduce the amount ultimately available to shareholders.
TeraWulf must spend heavily on construction before it can collect rent from Anthropic. The company has not yet disclosed the project's total cost or full financing plan. TeraWulf exited the first quarter with $5.3 billion in debt.
It has already used stock sales to help fund its expansion. An April common stock offering and other share issuances increased its share count from 425.1 million on March 31 to 495.5 million on May 5. Hence, while further stock sales could fund construction, they could also dilute existing shareholders.
Is WULF still worth buying?
TeraWulf's market capitalization was around $8.75 billion as of July 31. Hence, investors are already valuing the company at almost 9.2 times the Anthropic lease's simple average annual revenue, even before including the remaining construction capital.
While the valuation and execution risks cannot be ignored, TeraWulf's strengths include a 20-year contract with Anthropic, direct ownership of the infrastructure, and an AI-hosting business that is already generating revenue.
TeraWulf appears to be a higher-risk, higher-reward stock that is best kept as a small position. The key question is how the company will fund the Anthropic campus. Affordable project financing would support the investment case, while another large stock sale could dilute existing shareholders.
Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.