TeraWulf (WULF) is planning to offer $3.2 billion in senior secured notes to help finance a portion of the expansion for its Google (GOOG)-backed data center in New York.
The private offering of notes will be due in 2030.
The $3.2 billion bond offering is about half of TeraWulf’s $6.3 billion market cap. It will be the largest bond issuance as a proportion of public market cap this year, according to Barron’s, which cited info from Dow Jones Market Data.
TeraWulf announced in August that it had signed two 10-year high-performance computing (HPC) colocation contracts with AI cloud platform Fluidstack that will be backstopped with $1.8 billion from Google.
The deal gives Google an 8% stake in TeraWulf.
The company is projecting to earn $3.7 billion in contracted revenue over the initial 10-year terms, and with two five-year extension options on the table, the revenue could reach approximately $8.7 billion if they are exercised.
TeraWulf’s Lake Mariner data center in Western New York is a facility purpose-built for liquid-cooled AI workloads.
Although tech giants like Meta (META) and Oracle (ORCL) have raised billions of dollars in debt financing through investment grade and real estate financing deals for data centers, TeraWulf is part of “a new breed of borrowers that are expanding the search into the junk credit markets,” as Bloomberg reported.
This new breed includes CoreWeave (CRWV), which made a $1.5 billion junk bond offering in July.
Credit rating firms are currently deciding where to place TeraWulf’s offering within the BB to CCC range of junk bond ratings. Having Google’s backing could be deemed as adding security for the transaction, as Barron’s noted.
Although TeraWulf primarily built its name as a bitcoin miner at first, the company has pivoted its business to take advantage of the explosive demand for AI data centers.
Daniel Newman, CEO of The Futurum Group, told Fox Business on Tuesday that TeraWulf is one of three “AI utility” companies that he’s most bullish on, along with IREN Limited (IREN) and Cipher Mining (CIFR).
“The biggest thing about them is we’re seeing these cloud hyperscalers all have to expand capacity faster than they can build it out,” Newman said.
He added that CEOs at a number of these hyperscalers have told him over the past few weeks that "there is no limit” to the demand for power that can be provided by companies like TeraWulf.
“There is basically an insatiable demand for AI compute, so it’s very opportunistic,” Newman said.
TeraWulf’s stock has surged 173.3% this year.
Doubts raised on data center profitability
As companies pour billions into building data centers – including BlackRock’s (BLK) just-announced $40 billion deal – it has fueled growing concerns about an AI bubble forming.
Harris Kupperman, CEO of Praetorian Capital, is one of those sounding the alarm.
He wrote in a note in August that he acknowledges that AI is “the future" and that “we’re just scratching the surface in terms of what it can do.”
“I recognize all of this,” he said. “I also recognize massive capital misallocation when I see it. I recognize an insanity bubble, and I recognize hubris.”
The problem, according to Kupperman, is that these data centers being built for billions of dollars won’t be generating profits anytime soon, making them essentially money losing operations.
“AI datacenters to be built in 2025 will suffer $40 billion of annual depreciation, while generating somewhere between $15 and $20 billion of revenue,” he noted.
Kupperman estimates that data center revenue would have to increase tenfold in order to justify the money going into them.
“I don’t see how there can ever be any return on investment given the current math,” he said.
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