Can Bitcoin Miners Lead the AI Revolution?

Research firm Bernstein has presented a compelling case for Bitcoin mining firms to transition into building AI data centers. These mining companies could derive up to a third of their future enterprise value from the AI sector. The report anticipates that 30%-35% of their 2025 estimated enterprise value (EV) will come from the AI vertical, with miners expected to redirect around 20% of their power capacity towards AI by 2027.

Bernstein initiated coverage on two prominent Bitcoin miners, Iris Energy (IREN) and Core Scientific (CORZ), praising their hybrid Bitcoin/AI data center strategies and rating them as “Outperform” with significant upside potential.

The report emphasizes the strategic advantages that Bitcoin miners have in the AI data center space. Their early entry into the power interconnection queue provides a notable competitive edge. “Bitcoin miners are emerging as attractive partners to build out AI Data Centers (DC) with ‘ready power interconnect’ and data center operating capabilities,” Bernstein explained.

In Texas, where 60% of U.S. Bitcoin mining capacity is concentrated, the interconnect queue has more than doubled over two years, with AI data centers and Bitcoin miners making up a significant portion. “Bitcoin miners today control ~6GW of power access, with a pipeline up to 12 GW by 2027,” Bernstein noted, highlighting that these miners operate at a competitive power cost of ~$0.04/KWh, compared to the U.S. industrial average of $0.08/KWh.

The report also highlights significant deals driving this pivot, such as the $4.7 billion co-hosting deal between CoreWeave and CORZ, and IREN’s GPU buildout for Poolside.AI. Bernstein projects that by 2027, 20% of Bitcoin miners’ power capacity (approximately 2.5GW) will pivot to AI, primarily led by hybrid AI/Bitcoin DC players like IREN, CORZ, and HUT, alongside smaller miners.

Investment implications are considerable. By rating IREN and CORZ as “Outperform,” Bernstein asserts that the market undervalues Bitcoin miners for their strategic power portfolios and potential monetization through AI data centers. The market’s current penalization of Bitcoin miners due to Bitcoin’s volatility is unwarranted, given Bernstein’s expectation of a long-term structural uptrend in Bitcoin, driven by increasing institutional adoption.

Bernstein’s confidence in Bitcoin’s future has grown following the success of Bitcoin ETFs, which signify increasing acceptance and integration of Bitcoin into mainstream investment portfolios. Currently, Bitcoin ETFs manage about $55 billion in assets, a mere 0.16% of the addressable asset pools, compared to gold ETFs at $210 billion.

“Bitcoin, being the younger asset, has more headroom to grow while being adopted within asset allocation portfolios,” the report states. Despite 80% of ETF flows currently coming from self-directed retail investors, Bernstein is optimistic about imminent institutional inflows from private wealth platforms, RIAs, and wirehouses.

The report reiterates Bernstein’s bullish Bitcoin price forecasts, expecting the digital asset to reach $200,000 by 2025, $500,000 by 2029, and exceed $1 million by 2033. Bernstein underscores Bitcoin’s unique demand-supply dynamics and its four-year price cycle, driven by halving events. The last halving occurred on April 20, 2024, marking the start of a new cycle.

The reduction in miner sell pressure post-halving and the HODL culture, where holders retain Bitcoin through volatile periods, are seen as key contributors to price breakouts. The last cycle from 2020-2023 saw significant price increases following the May 2020 halving, fueled by institutional demand from entities like Grayscale, MicroStrategy, and Tesla.

Bernstein’s report underscores the potential for Bitcoin miners to strategically pivot into the AI data center market, highlighting their competitive advantages and significant investment potential. With increasing institutional adoption and the growing acceptance of Bitcoin in mainstream portfolios, the future looks promising for Bitcoin miners diversifying into AI and the broader cryptocurrency market.