As bitcoin miners continue to shift operations to high-performance computing (HPC) and artificial intelligence, equity analysts at Needham & Company see two stocks that stand to benefit most right now.
Analyst John Todaro on Wednesday initiated a 'buy' rating on the stocks of bitcoin miners Core Scientific (ticker: CORZ) and TeraWulf (WULF), as well as a 'hold' rating on Iris Energy (IREN). Power capacity is the near-term bottleneck for AI infrastructure, according to Needham, and U.S.-based miners in aggregate have access to 7GW or more of power capacity.
"HPC represents a high margin, large + growing revenue opportunity with long-term contracts (10yr+) providing revenue and margin transparency longer term," Todaro wrote in a note to clients. "This is especially beneficial to miners which have volatile revenue streams from bitcoin mining and an uncertain margin profile longer term given the bitcoin halving events which occur every 4 years and which historically have been, and are theoretically are, margin reductive."
Core Scientific is the furthest along among bitcoin miners in HPC following its multi-year contract with CoreWeave.
"CORZ has contracts in place for ~385MW of HPC co-location capacity, which equates to more than $500m in annualized revenue. We estimate CORZ will have 271MW online by end of '25CY and 383MW by end of '26CY--this would make CORZ one of the first miners, if not first, to have a 100MW+ HPC site online," Todaro wrote.
Additionally, Todaro said Core Scientific is uniquely positioned as its total site portfolio is fairly suitable for HPC, given its location near metro areas and that all sites have previously been outfitted with fiber. The capital expenditures required to retrofit bitcoin sites to HPC are lower than estimates for competitors, such as peer sites in West Texas, according to Needham.
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The analysts also see TeraWulf as one of the best-suited miners to convert data center capacity to HPC, and Needham expects both Core and TeraWulf to be the first miners to have a large-scale HPC site online in 2025.
"We estimate WULF will generate $1.55m in revenue per net useful MW, which equates to $350m in 2026CY HPC revenue (assuming 226MW in net critical capacity come online). We envision gross margin of ~70% equating to $245m in HPC profit in 2026CY," Todaro wrote.
On the other hand, Needham is more neutral on Iris Energy as it does not have "serious" HPC realizations in the near-to-medium term. As such, the analysts said Iris should be compared to pure-play bitcoin miners, and the stock currently trades in line with those peers.
"We find the company's bitcoin mining operations attractive, as it has leading machine efficiency which we expect will result in materially improving bitcoin mining cash breakeven costs moving forward into '25 and '26. We also note improving average portfolio power costs as its Childress site comes more online," Todaro wrote.
CORZ stock was trading up 5% early in Wednesday's session, while WULF was up about 2% at publication time. IREN was down about 0.6%.
The price of bitcoin is down 0.5% over the last 24 hours to $57,504, according to The Block's BTC price page. Needham's estimates for bitcoin price include a late 2024 to early 2025 rally that peaks in 2025 and declines before settling around $80,000 in late 2026.
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