Bernstein Sees Potential in AI Data Center Pivot for Bitcoin Miners

By Murtuza Merchant

Research firm Bernstein has argued that Bitcoin mining firms are well-placed to pivot into building out AI data centers, in a new report shared with Decrypt.

The report projected that mining firms could derive as much as a third of their future enterprise value from the AI vertical. "We expect 30%-35% of their 2025E EV to be derived from the AI vertical,” the authors stated, adding that miners are expected to pivot around a fifth of their power capacity towards AI by 2027.

The research firm initiated coverage on two Bitcoin miners, Iris Energy (IREN) and Core Scientific (CORZ), highlighting their hybrid Bitcoin/AI data center strategies. Both are rated “Outperform” with significant upside potential. 

The report detailed the strategic advantages Bitcoin miners hold in the AI data center space, arguing that their early entry into the power interconnection queue gives them a 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.

For instance, in Texas, where 60% of U.S. Bitcoin mining capacity is concentrated, the interconnect queue has more than doubled in two years, with AI data centers and Bitcoin miners forming a significant part of this queue. 

"Bitcoin miners today control ~6GW of power access, with a pipeline up to 12 GW by 2027E," Bernstein noted, adding 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 highlighted significant deals that have catalyzed this pivot, such as the $4.7 billion co-hosting deal between CoreWeave and CORZ, and IREN’s GPU buildout for Poolside.AI. 

"We expect 20% of Bitcoin miners’ power capacity to pivot to AI by 2027E (~2.5GW), mostly led by hybrid AI/Bitcoin DC players (IREN, CORZ, HUT) and smaller miners," Bernstein projects.

Investment implications are significant. In rating IREN and CORZ as “Outperform,” Bernstein researchers argued that the market undervalues Bitcoin miners for their strategic power portfolios and potential monetization through AI data centers. They added that 

"The market is penalizing Bitcoin miners for Bitcoin volatility, despite our expectation of long-term Bitcoin structural uptrend led by growing institutional adoption," the report states.

Bitcoin ETFs have “headroom to grow”

Bernstein’s confidence in Bitcoin’s future has strengthened following the success of Bitcoin ETFs, arguing that it indicates a growing acceptance and integration of Bitcoin into mainstream investment portfolios. 

Currently, Bitcoin ETFs manage about $55 billion in assets, a mere 0.16% of 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 stated.

Despite the fact that approximately 80% of ETF flows currently come from self-directed retail investors via broker platforms, the report noted optimism about imminent institutional inflows from private wealth platforms, RIAs, and wirehouses. 

"We believe Bitcoin ETF issuers are increasingly optimistic of imminent inflows from private wealth platforms/RIAs/wirehouses in the near term," the report stated.

Bernstein reiterates bullish Bitcoin price prediction

The report saw Bernstein double down on its bullish Bitcoin price stance, reiterating its forecast that the digital asset would reach $200,000 by 2025, $500,000 by 2029, and exceed $1 million by 2033. 

In its report, Bernstein emphasized Bitcoin’s unique demand-supply dynamics and its four-year price cycle, driven by its halving events. 

The last halving occurred on April 20, 2024, marking the beginning of a new cycle.

The report highlighted that the reduction in miner sell pressure post-halving and the HODL culture, where holders retain Bitcoin across volatile periods, contribute to price breakouts. 

In the last cycle from 2020-2023, institutional demand from entities like Grayscale, MicroStrategy, and Tesla triggered significant price increases following the May 2020 halving.