The bank argues that months of underperformance reflect misconceptions about powered-shell providers, and it kept its Attractive industry view.
Morgan Stanley thinks Terawolf is going to more than quadruple. It's the most bullish call for the stock that we've seen from any investment bank this year. Terawolf is down over 50% from their all-time highs this past summer. You're down, maybe not because the fundamentals of Terawolf have changed, but because the data center sector has just taken a bunch of beatings over the past few months. Long story short is, everybody's bullish Terawolf. How bullish are you? is the question.
Morgan Stanley reiterated an overweight rating on five AI data center stocks, including Hut 8, Terawolf, Riot, Galaxy Digital, and Cipher Digital. Of the five, Morgan Stanley gave Terawolf the most bullish boost with a price target 413% over its current market price at $12.67.
The bank argues that months of underperformance reflect misconceptions about the power shell providers, and it's keeping an attractive view on the entire industry.
Its bull and bear case is slated at $104 and $17 for the stock. Other targets include $43 for Galaxy, $35 for Riot, and Cipher at 51 bucks. All those numbers significantly higher than their current trading average.
The bank's core claim is that these operators are landlords, not neo clouds. They signed 15 to 20 year leases instead of two to three years. They build shells at $9 to $14 per watt versus 30 to 50 per watt, and they took no risk on chips or GPU allocation.
Morgan Stanley values expected Terrawolf contracts at 9% equity discount rate and a 7% terminal cap rate, which is above what most real estate investors expect.
Charlie, these bullish price targets look a little bit better after the Anthropic IPO filing paperwork, which showed a deep cash balance and profitable compute segments. What's your take on these new price targets from Morgan Stanley given the Anthropic IPO?
Well, I can't say a whole lot about what I think a 4X would look like, but I'll point out this. I mean, Terawolf is down over 50% from their all-time highs this past summer at what, like 28 bucks, 29 bucks. They're down at 12, so that's more than a 50% retracement. So technically, Morgan Stanley at 441% uh would actually only be a two, a slightly over 2X from Terawolf's all-time highs, which are down, maybe not because the fundamentals of Terawolf have changed, but because the data center sector has just taken a bunch of beatings over the past few months.
Um, I do want to mention that there have been a number of other bank notes and investment notes predicting the price that we've covered over the past few months.
October 7th, Wells Fargo, Terawolf had a $30 price target, which would be, you know, roughly 100% upside from now, actually 120% upside. Morgan Stanley as of, I believe August, had Terawolf at a $62 price target, which by the way, would only be 500% increase from where we are today.
And then also Needham, John Todaro, friend of the show here. I've got, we reported on this again in August. Um, they kept their Terawolf target at 33 bucks, um, which again, is slightly over their all-time high. So, the thing is like, everybody's bullish Terawolf. It's really just a matter of like, how much multiple increases it from here, which is at flat from the start of the year, or is it are we just benchmarking to the previous all-time high of like 28 bucks. Long story short is, everybody's bullish Terry Wolf. It, you know, how bullish are you is the question.
A few thoughts here. So one disclosure, I do hold Terrawolf in my personal portfolio and I'm a a long-term holder of it. I enjoy what the team is building over there, and I do think that the power shell model makes a lot of sense. And there are uh there is a big divergence in the market that I think a lot of people don't know about when they're first looking at these stocks. that neo cloud, hey, we're going to not only own the power and the land, but we're also going to buy the chips. We're going to build the orchestration layer for GPUs. We're going to go sign contracts with AI labs, or we're going to sell our compute into a generalized market.
And then there's the Power Shell model where it's like, hey, we're pretty happy with just owning the power in the land. We will be the landlord, you can be the tenant. You get certain rights to come use our facilities. They typically sign 15 to 20 year deals, and and that's pretty stable. You can kind of like look at the the net expectation for that over 15 to 20 years, and it's almost like the people who move in as tenants own the space for 15 to 20 years, uh but not quite because there's that profitable layer in between that companies like Wolf are able to sit in. And so I'm a huge fan of that.
Now, on the other hand, I do think that there are some dangers here, and I'm just going to pull up this chart if you can help me do that. But there's there's the other layer which is the funding risk for these sites. This is Cypher Digital, which I mentioned earlier in the show. They put out that convertible note, bad time in the market. They needed a little more money because cost overruns, expensive and hot to well, it's not expensive to build in Texas, but it's hot to build in Texas. They need a little more cash uh and the market kind of puked on it and they've been trying to recover for a while. You can see that market seems to try to be getting going again and it it's struggling, but uh you can look at over once these ads drop off, look at the the year to date levels and things like that and it's kind of struggling. I think so is trading view at the moment.
But it's uh, yeah, pretty brutal in a in a percentage term like we're not necessarily getting where we want to with with Cypher at the moment, uh because of those cost over runs. So moving away from that segment and getting away from it, I want to pull up this video from Paul Praeger. He's the CEO over at Terrawolf, and I think he does a good job explaining this.
We love a good Paul Praeger video. Was this is this the CNBC one? He had a great
Yeah. He had some great I linked it in the show notes so we should be able to pull that up in a second. But I'll let you grab that and in between I'll just kind of mention that the way that Terrawolf is thinking long-term at the moment is let's go find more sites. And I expect them to have more lease announcements going into next year and maybe even to earnings. like that's what these guys do. They're almost like real estate investors where they go and find plots of power land and build that out. Uh and it's excellent for investors because there's a little bit of risk diversification there versus the GPU market where it's like, hey, we got to go find debt, we got to go find uh installation teams, orchestration, we have to go find customers, two to three year contracts. There's a lot of problems with that versus like, hey, we need a plot of land, we need energy, let's go. Let's watch this from Paul Praeger is the CEO over at Terrawolf.
companies like Core Weave, Neo clouds, versus companies like ours, we're a co-location company, which means we own the land, we own the energy, we build the building, and we operate the data center. So we have long-term predictable cash flow and we get quality energy from an investment grade credit like utility, Kentucky Power, AEP, and we sell it to a high-quality credit. In this case, our customer, Lake Mariner, effectively is anthropic, in the announced deal Hawesville Anthropic. But what the investors also need to understand is that we have an investment grade backstop. In Lake Mariner, it's from Google.
In in Kentucky in Hawesville, we have an investment grade backstop commitment. So we can raise the capital at very competitive rates. I think the other thing that the investors need to understand is we're not all the same. You have to focus on execution. You must focus on execution. We have guided the markets that we're building at our facilities at 8 to 10 per megawatt, 8 to 10 million a megawatt. We are squarely right in that range. We haven't changed our story and we're delivering data hall 4 at the in the the fourth quarter and CB 5 in the first quarter of next year. So we're on schedule, we are on track to deliver within a timely fashion. We are delivering at the cost that we told the customer we would deliver at, and we have the capital.
He's right. I mean, it's like think about how long and persistent this narrative has been that they've been on time, at the budget they targeted, and they have investment grade counterparties. Like it's almost like they saw the playbook happening uh a year before it came to fruition. So shout out to.
Yeah, we're just bull bull posting here for Terrawolf.
Yeah, but but the stock's down 60% on the year, so you know.
Yeah, I mean a lot of these got spooked and there was a ton of compression in the in the markets since July. Uh, because it's like, oh, this tenant thesis, you do need to have multiple tenants. Remember, I remember a year ago, we were thinking about this with who's going to sign next? Who's going to get the next deal? And then it became not the next deal, but how many different types of counterparties you're going to have as deal? Is it going to be hyperscalers? Is it going to be different AI labs? And then it became, okay, execution, let's see the revenue start flowing in. And then it became, oh, are you keeping your cost down? Uh, oh, then it became, can you keep your debt levels within the boundaries? The game's always changing. Only a few teams are going to be able to execute. Right now, I like Wolf. Morgan Stanley also makes note of a few other companies. So I think we can leave the the levels there. As always, check out the website, uh blockspace.media for more content.
Yeah, we publish a lot on Terawolf and if new price targets from the banks and investment banks that we cover drop, we'll turn them around quickly. You'll hear it on our channels first, blockspace.media.
