As tech companies consider how best to scale the buildout of data centers over the next few years, Morgan Stanley has identified what it views as an up-and-coming, underappreciated opportunity: converting bitcoin mining sites to data centers. “We believe we are at a very early stage in terms of investor recognition of the upside potential stemming from converting Bitcoin mining facilities to HPC Data Centers,” analysts led by Stephen Byrd said in a note on Wednesday, referring to high-performance computing. “We think it is plausible to expect that a REIT structure is the ‘end game’ for Bitcoin mining assets converted to [data centers], and that the potential upside may be far more significant than appreciated.” The Wall Street investment bank’s calculation is as follows: its indicative valuation of a U.S. bitcoin mining facility ranges from between $2 and $3 per watt of capacity, while the value to a hyperscaler — like Microsoft, Alphabet and Amazon — of three years of time savings to power up a new data center is more than $10 per watt. Over the past few months, Morgan Stanley has seen more Bitcoin miners’ management teams focus on such a conversion opportunity, to about 80% from roughly 50%. These managements that have been engaging with data center developers and tech hyperscalers say demand and pricing feedback has been positive, Byrd said. This opportunity is even more attractive to investors, considering there could be a high likelihood of a significant shortage of new data centers between 2025 and 2027, driven by a lack of available grid interconnection, Morgan Stanley said. Bitcoin miners that Morgan Stanley thinks could benefit from this opportunity include Bitdeer Technologies Group , Cipher Mining , TeraWulf , Iris Energy and Galaxy Digital (None of which are covered by Morgan Stanley research.) Each stock is buy-rated from analysts polled by FactSet, and their consensus price targets indicate large potential upside. Cipher Mining, a potential standout, has actively pursued data center conversion opportunities for hyperscaler customers over the past few months, according to Morgan Stanley. “We like management’s commercial judgment and focus on achieving the best risk-adjusted outcome for shareholders,” the bank said in the 19-page note. Cipher “has large sites that appear to be well suited for the conversion opportunity, and the company has significant expertise in site development.” Cipher’s shares are down roughly 3% for the year and…
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