What AI Lacks Is Power: Bitcoin Miners With Secured Electricity Were Unjustifiably Sold Off 35% in October
Author: Matthew Sigel, Griffin MacMaster (VanEck Digital Asset Research Team)
Compiled by: TechFlow
TechFlow Digest: As the generative AI arms race enters deep waters, Wall Street is experiencing a cognitive shock regarding compute capital expenditures. In October 2024, as new GPU cloud service providers face high bond issuance costs and tech stocks pull back, a sell-off wave targeting the AI supply chain quickly spread to the crypto mining sector.
However, in its latest research report, global top asset management firm VanEck explicitly pointed out that the market conflated the balance sheet pressures of compute lessees with those of underlying power infrastructure landlords, leading to severe valuation misalignment. Wall Street overlooked a fundamental physical reality: the ultimate bottleneck determining the ceiling of global AI compute is no longer the GPU chips themselves, but extremely scarce grid energized capacity and high-load power interconnection points.
For publicly listed mining companies already holding high-voltage substations, grid interconnection permits, and powered shell assets, their long-term leases have not only faced zero cancellations, but have instead established an irreplaceable monopoly rent premium against the backdrop of US power grid interconnection queues extending to 2030. The irrational 35% pullback in October has provided a highly rare window for valuation repair for long-term capital.
October 35% Plunge: Powered Shell Providers Suffer Indiscriminate Trampling
In the just-concluded month of October, the US stock capital market witnessed a striking episode of indiscriminate asset selling.
The stock prices of publicly listed Bitcoin mining companies actively transitioning their high-load sites into AI data center infrastructure suffered cliff-like plunges averaging up to 35% within a single month.
From Hut 8 and Core Scientific to TeraWulf and Cipher Mining, these once pure-play crypto mining firms have successively completed a strategic transition in recent years toward becoming “Powered Shell Providers (PSPs)”.
Yet amid the wave of overall pressure on US tech stocks in October, Wall Street investors did not conduct granular differentiation of these companies' underlying business logic. Instead, they treated the entire sector as a homogeneous trade and executed indiscriminate stampede selling.
The Digital Asset Research team at globally renowned asset manager VanEck stated directly in the latest research report that this round of sharp decline completely detached from the core commercial fundamentals of the enterprises, and the current valuations of these mining companies have entered an extremely oversold zone.
VanEck emphasized that the current market stampede is essentially a typical "dislocation," and by no means a genuine rejection by the capital markets of the miners' long-term business model transformation into AI infrastructure.
Guilt by Association: The Misdirected Spillover of Neocloud Debt Panic
The core trigger for this round of indiscriminate selling lies in Wall Street's contagious panic over the debt crisis of new-generation GPU cloud leasing firms (Neoclouds).
Neocloud compute leasing companies represented by CoreWeave generally adopted aggressive financing through highly leveraged asset-backed debt to snap up hundreds of thousands of extremely expensive Nvidia GPU chips in a short period.
Alongside the continued high-interest rate environment from the Federal Reserve and the unexpectedly rebound in the US CPI in September, AI debt yields surged significantly, substantially increasing the debt servicing cash flow pressure on these compute operators.
Compounded by macroeconomic political uncertainty ahead of November's US midterm elections, pessimistic expectations of "compute lease defaults" began to spread in the secondary market.
Unfortunately, Wall Street judged the “powered shell providers” supplying sites and power to these compute operators as “guilty by association.”
In the panic selling by investors, people mistakenly conflated GPU operators bearing high chip depreciation risks and debt costs with infrastructure landlords who merely collect stable power and data center rent.
This risk contagion contains a massive cognitive misalignment logically: mining companies providing power and data center shells do not bear hardware price drop risks from chip obsolescence; their commercial role is purely that of utility and infrastructure lessors.
Rock-Solid Lease Fundamentals: Not a Single Signed Agreement Was Cancelled
Standing in stark contrast to the pervasive panic in the secondary market, the actual operational business of listed mining companies has demonstrated strong resilience.
VanEck disclosed a highly convincing key empirical data point in the research report: despite Neoclouds facing surging debt servicing costs, not a single long-term infrastructure lease agreement formally signed by the major mining companies has been cancelled or terminated.
Taking Core Scientific as an example, its massive 500-megawatt custody lease agreement with CoreWeave, spanning 12 years, continues to be performed according to plan.
TeraWulf's Lake Mariner campus expansion project is also being delivered in an orderly manner, continuously supplying stable clean power and data center space to external AI clients.
Meanwhile, Hut 8 is advancing digital infrastructure platform construction in partnership with well-known investment firm Coatue, while Cipher Mining and IREN are also securing ultra-large-scale power capacity according to plan.
Capital expenditures by tech giants and hyperscalers on generative AI model training and inference have not only failed to decelerate, but instead show a trend of continuous increase.
Even stepping back, even if individual compute lessees encounter extreme liquidity crises in the future, the underlying data centers and power capacities face almost zero idle risk.
Given the current market landscape with an intense thirst for power, top tech giants like Microsoft, Amazon, Google, or Oracle stand ready to fully takeover any energized quality assets at any time.
The Ultimate Hard Constraint on Compute: AI Lacks Power, Not Chips
VanEck bluntly pointed out the core truth of the current compute competition in the research report: the power capacity firmly controlled by these mining companies is the ultimate hard constraint (binding constraint) determining the total volume of global AI compute.
In the early stages of the generative AI boom, the focal point of competition among global tech giants was Nvidia's high-performance GPU chip production capacity.
However, as bottlenecks in the chip supply chain gradually ease, a more ruthless barrier in the physical world stands before everyone: the US national power grid simply has no surplus immediate power available to allocate.
Currently, the grid interconnection queue times for major regional transmission organizations across the US (such as PJM, ERCOT, and MISO) have stretched to 4 to 7 years, pushing many new projects even beyond 2030.
Furthermore, the lead time from order to delivery for core power equipment such as large high-voltage transformers has stretched to 3 to 4 years, making supply chain shortages extremely severe.
Industry calculation data shows that by 2028, the power demand gap for data centers across the US will reach tens of gigawatts (GW).
It is precisely under this extremely severe grid infrastructure shortage landscape that the energized assets built by Bitcoin mining companies over the past several years have been endowed with an unprecedented "scarcity premium."
These companies already possess compliant and legal grid interconnection permits, dedicated independent substations, and real-time available energized capacity reaching hundreds of megawatts.
Tech giants cannot buy time with ample USD capital in a short period, whereas the ready-made energized sites held by mining companies are the only shortcut to bypass the lengthy grid queue.
Severe Valuation Inversion: Forward EBITDA Valuations Hit Historic Value Depression
Based on irreplaceable power asset moats and stable lease cash flows, VanEck believes that the current valuation of mining company stocks has experienced a severe structural inversion.
In the US traditional data center sector, mature real estate investment trusts (REITs, such as Equinix and Digital Realty), benefiting from stable rental returns, maintain their enterprise value multiples (EV/EBITDA) consistently in a high range of 20x to 25x.
More crucially, the vast majority of mature campuses operated by these traditional data center giants are currently running at full capacity, universally lacking the giant incremental energized sites capable of supporting next-gen large model training.
In contrast, publicly listed Bitcoin mining companies holding gigawatt-level undeveloped power reserves saw their forward EV/EBITDA valuations hovering between 8x and 12x after the steep 35% plunge in October, a valuation level merely half that of traditional data centers.
This significant valuation discount clearly fails to properly factor in the 10-to-20-year fixed-income-style long-term contract cash flows locked in by the mining companies.
As the mining companies' powered shells are gradually delivered and begin contributing highly certain recurring EBITDA, the capital market will inevitably initiate a valuation re-rating of these enterprises.
VanEck concluded that the sharp drop triggered by market sentiment panic in October is by no means the collapse of the AI transformation narrative, but rather provides a highly attractive historic buying window for visionary long-term investors.