TeraWulf ($1.45bn mkt cap / $1.52bn EV / $4.40/share) is a bitcoin miner that operates 2 sites: Lake Mariner (Niagara, New York) and Nautilus (JV w/ Talen Energy in PA).

TLDR:

• Low-Cost Power & Expansion: TeraWulf benefits from low-cost hydro and nuclear power, targeting 13.3 EH/s capacity by year-end with an ongoing expansion of 85 MW.

• Debt Reduction & Efficient Operations: Focused on paying down $76mm debt; maintains high efficiency with one of the lowest marginal hash costs in the industry.

• AI Data Center Potential: Potential to repurpose 300 MW capacity for AI compute at Lake Mariner and monetize 200 MW at Nautilus with Amazon, diversifying revenue streams.

• Growth Catalysts: Could capitalize on high demand for data center capacity, mirroring CoreWeave/CORZ deal economics, potentially adding $450mm in revenue (10x+ increase)

Tera has some of the lowest cost of power in the BTC mining industry, with LM near a hydro flush area and Nautilus being powered by nuclear energy at a fixed $0.02/kWh. WULF has a steady expansion plan to reach 13.3 EH by EOY.

It still had $100mm of debt on the balance sheet and has focused on paying this down with operating cash flow. At the end of Q1 2024, WULF had 8 EH/s of online mining capacity and has one of the lowest costs of power and efficient fleets in the industry, with Cipher and CleanSpark as the only two miners achieving a marginal hashcost below $0.03 cents in 1Q24.

Currently WULF has 210 MW in operation with another 85 MW being added. WULF also entered into a new purchase order for 7 EH of S21 machines with an option to purchase an additional 30,000. WULF had $46mm of cash and no BTC on the balance sheet, with $76mm of debt. It currently has 2 MW pilot project for its HPC space and is expected to grow to 10 MW.

With the AI race running hot, one of the key infrastructure needs is data center and power capacity to run the GPUs. US power usage has been roughly FLAT for over a decade due to efficiency gains in technology (efficient appliances, LED lights, etc) offsetting population growth and energy consumption growth. Lack of grid investment has also led to bottlenecks.

Today, data centers account for 2% of global energy consumption, but with new applications the market expects ~10% CAGR in demand growth for US data centers. With new rapidly increasing needs for power, particularly near population centers, existing power contracts and infrastructure owned by the bitcoin miners can now potentially be repurposed to these new use cases.

This has resulted in a massive contract between CORZ and CoreWeave to build 240MW of HPC capacity. The economics of this deal, roughly $1.4mm to $1.6mm of gross profit per MW for 12 years has turned attention to other BTC miners with excess power.

For WULF, Amazon recently purchased the datacenter campus where Nautilus is built from Talen Energy for $650mm with planned capacity of 960MW, of which 200MW is earmarked for WULF. Importantly, speed to market matters for data centers, with lead times for greenfield data centers being 3-5 years vs 1-2 years for conversion (and lower Capex needs).

On AI Data centers, the infra costs are $8mm to $12mm / MW for greenfield vs $5mm to $8mm on a conversion, with the power infrastructure alone costing $3mm to $8mm. The reality is that an acquisition of a BTC miner’s space would be to access the power and electrical infrastructure. It’s worth noting the all in costs for an HPC data center (including the GPUs) would be ~$40mm / MW, so these huge facilities require big, high quality partners.

The two compelling catalysts for WULF are

1. Wulf’s ability to grow 300 MW of additional capacity at Lake Mariner, and speculation that additional capacity could go towards AI compute and

2. Potential monetization events surrounding the 200 MW of capacity at Nautilus that Amazon could potentially buy off of WULF.

Applying the economics of the CoreWeave/CORZ deal, WULF has the potential to add a $450mm revenue business diversified from its core BTC mining operations (from 35 mm LTM).

There is such demand for these data centers that CoreWeave is willing to pay for the capex build out and receive compensation in revenue credits, allowing capital strapped miners to make the switch with minimal investments.