Did Cipher Digital Just Turn It Around? KBW Sees 50% Upside

Well, AI stocks are crashing and everyone is running for the exit. Investment Bank KBW just held their outperform rating on data center stock Cypher Digital. In a fresh note published today after Cypher's Q3 earnings call, analyst Steven Glagola held his outperform rating and kept its $11 price target. This is the key part. KD KBW expects a muted reaction to the earnings call given the state of the Texas Governor's race. Earnings should have beat on earnings per share despite lower than expected revenue. As of today, Cypher trades roughly 50% below what KBW expects Cypher to hit on using its model. As we're talking here, Charlie, the stock has held up relatively well on the earnings. It's down certainly a little bit here. Uh but since the summer, you can see it's down 30 it's down from $30 a share to around $7 a share. So the question is, despite Cypher tumbling since the summer, do you think a 2X is possible given what they shared on their earnings call, what they have in their pipeline, and perhaps the biggest indicator is if the Republican secure a win for the Governor's Mansion in Texas tomorrow.

Yeah, a 2X, obviously. Cypher's got a great power pipeline. They've got a lot of proven track record. I think a lot of this, we we have to sit on our hands until the gubernatorial election in Texas tomorrow. Then we'll see. I think we'll get a lot of clarity there. And I think if Abbot wins, again, it could be close. If Abbot wins, we could see what the what the what the flip on data center moratorium or pause looks like. I'll also point out that I think you said KBW's got a price target here, and uh, yes, I think it could 2X, but I'm confused because didn't KBW also actually, they said there was 2X, but like they reduced their former price target by like 60% from 28 bucks to 11 bucks.

Yes. So, yeah, that's still bullish, but like, why are they less bullish? I I I'm curious about this. Yeah, no, this is something that I need to reach out to KBW and get some insights on because I'm curious myself. They went from $28 with an outperform ticker or outperform choice in August. The market rerated in between, obviously, with a lot of these stocks, you know, kind of getting pounded and going to elections. And so they went from $28 to $11. They kept the outperform, uh instead of going to neutral or sell. So we do have that and $11 is still 50% above Cypher's current holdings. But you know, we're not in that bullish $28, $30. As late as the summer, we had a $30 price target on Cypher. Now, at the time that seemed great, right? Because Cypher was indeed trading around $30. It actually seemed like $30 might be a little bearish on the stock, but we had so many negative things happen for this company and then I to the data center industry in general. Now, I will also say that I do hold Cypher. I'm a huge fan of the team, huge fan of the

Me too. Me too. I love Cypher. I own some Cypher disclosure. Yeah.

So there's a there's a disclosure there, but some negative things that have happened. One, they're mostly Texas-based, right? And as that race has become tighter, they have had more pressure on their stock price there, right? We already talked about the governor's race if it flips from red to blue, could be in a world of hurt. Also, Ercot. We had Ercot change its batch process, not everything in went in Cypher's direction. Some of them are still in like this studied load versus base load that they thought they're going to get. and then I think the last thing that was key here was Cypher decided to raise $850 million convertible note at a bad time in the market when the market was sort of weak already. Great that they were able to go get that cash and they had a great reason for it. They needed to basically upgrade some of their facilities for an existing deal. and in turn for that upgrade, they were able to extend and get another $5 billion in future revenue. So, $850 million now, $5 billion later, great decision, but market timing is really important. And the market did not like that convertible note offering. So I think those are some of the reasons that we saw the stock price tumble. I think KBW just sort of looked at the market and they kept the outperform because they still are bullish on Cypher, but they're realizing that a lot of these stocks are kind of rerated. We'll cover this later in the in the week, but B. Riley also brought down a lot of their price targets for companies that they cover in their remit.

Yeah, it's a lot of these things were were were shifts in the political climate which really went against Cypher and it happened very quickly. It is kind of like the national data center pushback story. I would say that's outside of their control. The convertible note, probably necessary, but a little bit at the mercy of the market and the timing, not it's like unfortunate but whatever. There's also the cost overruns at Barber Lake, but again, that's a that's a pretty common thing. We covered this on the podcast where he said basically, not not crazy, a little bit to to be expected. This is a pretty common in, you know, retrofitting or changing the process. So none of neither of those, none of the things that were within Cypher's control that I see are really that bad or change much of the fundamentals. I think you just got to look at the things happening external to the company, which are stuff outside your control. So how do you reprice Cypher based upon this new information? Maybe that's maybe that's what the uh KBW note's about.

Yeah, I mean, I think they're still bullish. Obviously they have a 50% price increase price target based on the current trading price of Cypher, which is around $7. And at the outperform sticker there. I think some things from the earnings call to cover for those who missed it. They beat on earnings per share a little bit and then they lost on revenue. The revenue decline comes from Bitcoin mining sort of going away. They did secure their first yield, so to speak, on HPC. So that's a huge win for the company. Not too long ago, even Bitcoin miners getting HPC revenue was sort of seen as like this distant dream that only a few companies could execute on. So I think hat tip to Cypher for seeing the revenue flow into their coffers for the first time. I think that's notable. Few other updates, they signed a 70 megawatt site in Texas as well that they plan to build out. As of right now, that sits under the 75 megawatt minimum to be included in some of the Ercot processes for getting like a direct load study. That might change in the future, but if they're able to like move with that quickly and and get that built out from a green field into an actual data center, that might be able to slip under the radar for a little bit, but who knows. The last point to make is about Colecus, their 1 gigawatt site, which I think is a pretty important topic to hit on. There's not a lot of 1 gigawatt sites still in Texas. And these are the sites that are used for training the large inference models, right? So chat GBT's latest models were trained on the Cruso sites in Abeline. uh and they're using, you know, those huge data campuses to train the new models. And then the inference can kind of happen at some of the smaller campuses. So for for Cypher to have Colecus as one gigawatt site sitting there, Tyler Page, the CEO described as their crown jewel that, you know, they think they're going to be able to sign with a high creditworthy tenant at some future date. They're having a lot of active conversations with it. A lot of people are taking like uh scope of how they could architect out that build. I would see a few of these things as lifting them in the future. One, just kind of getting the narrative straight on the cash flow and how the HPC is kind of lining up. Two, the ability to continue to build out sites and pipeline. And three, most importantly, ideally getting some tenant or some announcement in the next 180 to 200 days. That would be huge for the stock and I would expect that it would go up because of that as like an uplift on the valuation. It would just prove that the management can execute on its pipeline in a way that you and I have already seen them do in the past. Any thoughts there?

I agree. I agree with this. I think we just need to see if they can execute on the on the things that remain in their control. And this is the story of of everybody during volatile, you know, massive periods of growth in industry, things change very, very quickly. So within the realm of of stuff that you can control, can you execute? So I still own Cypher. So that's that's where I that's where I sit. Maybe I won't make as much as if I'd bought, uh, you know, like you know, Samsung stock a year ago, but still, I know more about PowerShell than I do memory. We are going to keep on going. We're going to go back to the main data center everybody talks about, the one that Elon's got in Tennessee, but before that, a word from our sponsor.