The pivot of Bitcoin miners to the AI/HPC sector is creating a significant investment opportunity due to their valuable access to cheap power. Iris Energy (IREN) is presented as a highly undervalued play on this theme, with analysis suggesting it could become a $10 billion company in the next 2-3 years. For investors who also want direct exposure to Bitcoin, Riot Platforms (RIOT) is a strong alternative as it holds the Bitcoin it mines while pursuing a similar AI growth strategy. Consider Marathon Digital (MARA) as a value investment, functioning like a "cheaper than a Bitcoin ETF" due to its low valuation relative to its assets. To gain broad exposure to this entire theme, consider investing in a Bitcoin miners ETF.

Iris Energy (IREN)

• The company is pivoting from being a pure Bitcoin miner to focusing on AI and High-Performance Compute (HPC) opportunities.
• They are pausing their Bitcoin mining expansion once they reach a capacity of 50 Exahash (EH/s), which was expected by June 30th.
• A key criticism from the speaker is that IREN sells the Bitcoin it mines instead of holding it on its balance sheet, unlike other miners. The speaker owns the stock despite this.
• Mining Operations:
  • Considered one of the best and most efficient Bitcoin miners.
  • Their mining fleet is modern and efficient at 15 joules per terahash. For comparison, the speaker notes MARA is around 23 joules per terahash.
  • They have very cheap power costs at 3.3 cents per kilowatt-hour, giving them a significant competitive advantage and a 58% gross margin on mining.
• Valuation: The speaker presents two arguments for the stock being undervalued.
  • Price-to-EBITDA:
    • Based on the last quarter's performance, the annualized price-to-adjusted-EBITDA is 9.4x, which is described as "dirt cheap."
    • Looking forward, with the full 50 EH/s capacity, the illustrative annualized adjusted EBITDA would be $588 million. This results in a forward price-to-adjusted-EBITDA of 5.3x, a multiple typically seen in failing companies, suggesting the market is mispricing the stock.
  • Sum-of-the-Parts (SOTP) Analysis: The speaker believes this is a better way to value the company.
    • Mining Hardware: The 50 EH/s of mining equipment is valued at approximately $800 million, plus another 20% for infrastructure (transformers, buildings), for a total of $960 million.
    • Childress Site (AI/HPC): This is their key future project, a 750-megawatt data center campus. The speaker values this site at $3.8 billion by comparing it to the market's valuation of Core Scientific (CORZ).
    • Sweetwater Site (Wildcard): This is a future development with 2 gigawatts of secured power access. The speaker views this as a "major sweetener" and a long-term wild card that could be worth multiple billions.
    • The SOTP calculation results in a negative adjusted market cap of $2.5 billion, strongly implying the stock is highly undervalued.
• Capital Structure:
  • The company recently raised funds via convertible debt, which the speaker views positively as it postpones dilution until 2029 at a premium to the current stock price.
  • The CEO has stated they are focused on limiting future shareholder dilution.

Takeaways

• IREN presents a compelling investment case based on two different valuation methods (Price-to-EBITDA and Sum-of-the-Parts), both of which suggest the stock is significantly undervalued.
• The primary investment thesis is the company's pivot to AI/HPC, leveraging its access to cheap power. The Childress and Sweetwater sites represent massive growth potential that the market may not be fully appreciating.
• The speaker believes the stock has the potential to become a $10 billion company in the next 2-3 years.
• A key risk is the company's strategy of selling its Bitcoin. This means investors do not get direct exposure to a rising Bitcoin price through the company's balance sheet, unlike competitors such as RIOT. The investment is a bet on the management's ability to execute its AI/HPC strategy.

Bitcoin (BTC)

• The speaker is fundamentally bullish on Bitcoin and prefers miners that hold it (hodl) on their balance sheets.
• The value of Bitcoin mining hardware is highly sensitive to the price of Bitcoin in the short-to-medium term.
  • Potential Catalyst: If Bitcoin's price were to spike to $150,000, the value of miners' hardware would increase significantly.
  • Risk Factor: If Bitcoin's price were to drop to $50,000, the value of the hardware would fall.
• Bitcoin is described as a commodity with macro risk, which the speaker prefers over the business execution risk associated with building out data centers.

Takeaways

• Investors in Bitcoin miners should be aware that the value of the companies' core assets (the mining rigs) is directly tied to the price of Bitcoin, creating leveraged exposure.
• A bullish outlook on the price of Bitcoin is a bullish indicator for the entire mining sector, as it increases both profitability and the value of their operational assets.

Riot Platforms (RIOT)

• The speaker also owns RIOT and tends to prefer it over IREN for one primary reason: RIOT holds the Bitcoin it mines.
• Like IREN, RIOT has a major AI/HPC growth project, the Corsicana site, which provides similar future potential.
• The investment choice between IREN and RIOT is framed as a preference between two "sweeteners":
  • IREN's sweetener: The massive long-term potential of the Sweetwater development.
  • RIOT's sweetener: Its large Bitcoin hodl bag, providing direct exposure to the underlying asset.

Takeaways

• RIOT is presented as an alternative to IREN for investors who want exposure to the AI/HPC pivot but also want the security and upside of a large Bitcoin position on the company's balance sheet.
• The choice between IREN and RIOT depends on an investor's preference for asset exposure: tangible data center development potential (IREN) versus a large holding of a digital commodity (RIOT).

Marathon Digital (MARA)

• The speaker owns MARA, but not for its mining operations, which are noted as being less efficient than IREN's.
• The primary reason for owning MARA is its valuation. It is described as trading at a price-to-Enterprise-Value (EV) below one, making it function like a "cheaper than a Bitcoin ETF."
• Like other miners, MARA also has valuable access to cheap power.

Takeaways

• MARA is positioned as a value play for getting exposure to Bitcoin at a discount to its underlying assets. Investors are essentially getting the company's power infrastructure and operational upside for free at its current valuation.

Core Scientific (CORZ)

• CORZ is used as a key valuation benchmark for other miners pivoting to AI/HPC.
• It is described as a "Bitcoin mining company who identifies as an AI HPC play," with 84% of its revenue still coming from mining.
• The market is valuing Core Scientific's 900 megawatts of AI/HPC potential at approximately $4.5 billion.
• The speaker notes that many other miners have "Core Scientific envy," aspiring to achieve a similar valuation for their AI/HPC ambitions.

Takeaways

• CORZ serves as a leading indicator for how the market may value other Bitcoin miners as they successfully transition parts of their business to AI/HPC hosting. Its valuation provides a roadmap for the potential re-rating of stocks like IREN and RIOT.

Investment Theme: Bitcoin Miners & Power Access

• The most valuable asset for Bitcoin miners going forward may not be their mining rigs, but their long-term contracts for large-scale, cheap power.
• This power access, secured during crypto bear markets, is now extremely valuable to the power-hungry AI/HPC industry.
• The speaker suggests that the market will increasingly value these companies based on their power infrastructure rather than just their Bitcoin production.

Takeaways

• The entire Bitcoin mining sector could see a significant re-rating as the market recognizes the immense value of their power assets for the AI boom.
• For investors bullish on the theme but undecided on a single stock, buying a Bitcoin miners ETF is mentioned as a reasonable strategy to get broad exposure to this trend.