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Cipher Digital is an underrated AI stock that can outpace the S&P 500 over the long run.
Cipher Digital's business model focuses on building AI data centers and securing long-term contracts, which provides a predictable revenue stream. The company recently signed a 15-year lease with an "investment-grade hyperscale tenant" and has a significant 15-year, $5.5 billion deal with Amazon to provide 300 megawatts of capacity, translating to $367 million in annual revenue. With a total portfolio capacity of 4.2 gigawatts, Cipher Digital has ample potential to expand its customer base and sign many more such lucrative deals as its AI data centers become operational, indicating strong long-term growth prospects.
Cipher Digital utilizes a 'landlord model' where it provides the AI data centers, land, and power, while its customers are responsible for supplying their own AI chips. This strategic approach offers a distinct cost advantage over competitors like Iren and Nebius, which invest additional capital in purchasing AI chips for their facilities. Although Cipher Digital's individual contract values for the same energy capacity might be lower, its simplified model allows for faster deployment of AI data centers. This efficiency in getting sites operational more quickly positions Cipher Digital competitively to generate revenue rapidly and potentially achieve better returns than its rivals.
Rapid deployment and energization of AI data centers are critical for revenue generation in the industry. Cipher Digital has concrete plans to bring 270 megawatts of energy online in 2027, with a substantial 2.5 gigawatts expected to be energized between 2028 and 2029. Despite a 29% year-over-year revenue decline in Q1, attributed to its past focus on crypto mining, the company is poised for a significant revenue boost. The Amazon contract is expected to start generating revenue in August, and with a robust gigawatt pipeline, Cipher Digital is positioned for rapid scaling and long-term recurring revenue, potentially enabling its stock to outperform the S&P 500.