Bernstein hits back at Culper's short report on mining firm IREN; values Block and Core Scientific deal at $300 million

Analysts at research and brokerage firm Bernstein hit back against short seller Culper Research’s argument against IREN’s AI upside potential and the notion that bitcoin mining is “valueless.”

IREN’s stock had plunged by more than 13% by market close on Thursday amid Cupler’s report , which claimed IREN's shares were overvalued — worth anywhere from 52% to 79% less than current prices on a sum-of-the-parts basis. Culper ascribed $0 to $100 million in value to the company’s crypto mining operations.

In a note to clients late Thursday, Bernstein analysts Gautam Chhugani and Mahika Sapra said the bulk of Culper’s short argument was based on criticizing IREN’s Childress site and its unsuitability for AI operations. However, the Bernstein analysts countered that the Childress site was mainly committed to the expansion of bitcoin mining, where the existing power and data center infrastructure works well.

“IREN has not claimed it intends to retrofit its bitcoin mining site in Childress to AI (à la CoreWeave). Further, 65% of our fair value is based on bitcoin mining, and the remaining 35% from AI/HPC. Thus, we completely disagree that bitcoin mining is valueless,” Chhugani and Sapra wrote.

Notably, Culper’s report had come just two days after the Bernstein analysts initiated coverage on IREN with an outperform rating, citing the company’s hybrid bitcoin mining and AI data center strategies.

The Bernstein analysts said their anticipated AI upside for IREN comes mainly from its larger 1.4GW pipeline site in West Texas, with the opportunity to monetize land and power interconnect, building out an AI data center from scratch as the work on the site has not commenced yet.

Regarding Culper’s additional criticism that IREN’s GPU build-out for Poolside.AI in British Columbia operates at cooler temperatures and IREN‘s air cooling design would fail in hotter Texas, Chhugani and Sapra said if IREN monetizes its 1.4GW site, “it would build it out greenfield with all the specifications for AI data centers including power redundancy, liquid cooling, rack density, etc. The Poolside GPU cloud is just a good demo that IREN knows how to run HPC data centers.”

Finally, responding to Culper’s argument that IREN has spent $1 million per MW on its Childress facility and other mining facilities, and AI/HPC requires $12 million per MW to build a site, the Bernstein analysts said, “IREN’s current $1mn/MW capex metric entirely reflects bitcoin mining capex, thus comparing that to AI/HPC capex is not meaningful.”

“Unless, Culper argues all bitcoin mining businesses are worth zero, which means we are ignoring that bitcoin has been in a new institutional cycle, driven by the launch of Bitcoin BTC -3.11% ETFs by global asset managers (most successful ETFs ever with $15 billion of inflows within 6 months of launch). We expect Bitcoin to continue its upward trajectory, hitting new highs by 2024 end and heading to $200K by 2025E. At ~40K bitcoin production cost for IREN, it is unreasonable to assume permanent negative cash flows from bitcoin mining,” Chhugani and Sapra concluded.

The Block reached out to Culper and IREN for comment.

Block’s deal to supply Core Scientific with mining chips estimated to be worth $300 million

On Tuesday, the Bernstein analysts also initiated coverage on Core Scientific with an outperform rating given its similar hybrid bitcoin mining and AI data center strategy. In June, Core Scientific signed a series of 12-year contracts with AI Hyperscaler CoreWeave. 

On Wednesday, Block, co-founded by former Twitter CEO Jack Dorsey, also announced an agreement to supply Core Scientific with its new 3-nanometer ASIC mining chips, representing approximately 15 EH/s of hashrate and more energy efficient than current designs.

Although no specifics on the value of the agreement were provided at the time, in a separate note to clients yesterday, Chhugani and Sapra estimated the deal to be worth in the region of $300 million if it is priced in line with current competition. “However, specifics would depend on the exact commercial partnership, as Core Scientific is positioned as a development partner in the deal and would depend on the expected efficiency improvement vs. the latest generation miner from Bitmain,” they noted.

Block’s new chips open up a supply chain historically dominated by three companies based in China: Bitmain (with more than 80% market share), MicroBT and Canaan.

The analysts argued that any new competition in bitcoin mining chips is good for mining operator economics, keeping equipment costs low. “Given the rise of U.S. based bitcoin miners growing in scale, diversifying the supply chain away from China, would be preferred and Block’s proposition as latest generation chips manufactured in the U.S. could see uptake from miners other than Core Scientific,” they added.

Gautam Chhugani maintains long positions in various cryptocurrencies.