AI Data Center Stocks Undervalued, Analysts Argue

Compass Point analysts Michael Donovan and Ed Engel argue that several companies repurposing former bitcoin mining sites for AI data centers are trading below their contract value. The report highlights Applied Digital, TeraWulf, and Cipher Mining as stocks with a significant disconnect between their contracted business and current valuations.

The analysts developed a framework to estimate the value of future rental income from signed contracts, which they then compare to each company's enterprise value. By doing so, Compass Point found that investors are underestimating the potential for these companies to generate steady cash flow from long-term leases with investment-grade customers.

While some companies in the sector have seen significant gains as they unveiled partnerships with hyperscalers and AI companies, returns have varied as investors weighed construction timelines, financing requirements, and the pace of customer signings. The report suggests that execution will become increasingly important for these companies as facilities come online and signed contracts begin producing revenue.

Compass Point's estimates suggest that Applied Digital, TeraWulf, and Cipher Mining are among the most undervalued in the sector, with potential upside from their existing contracted business. However, other companies such as Core Scientific and Riot Platforms also stand out for different reasons, with investors assigning varying levels of value to their AI development pipelines.

The report argues that the next two years will be a turning point for the sector as companies shift from announcing AI infrastructure deals to delivering them. As projects are completed, tenants move in, and rent payments begin, investors will have a clearer picture of the recurring cash flow these facilities can generate.