Cipher Mining surges on additional AI hosting deal
Bitcoin miner turned AI compute power provider Cipher Digital jumped early Thursday after announcing a deal that fully leases its Barber Lake data center in Colorado City, Texas.
The deal — which is also giving a lift to IREN, another miner turned compute provider — is an expansion of a previous agreement with Fluidstack, a UK-based provider of GPU-based cloud networks. The new deal amounts to roughly $830 million in additional revenue over 10 years, Cipher says.
The market clearly loves it. But it’s worth pointing out that this agreement is a pretty good example of the byzantine financial structures that are increasingly accompanying plans for many billions of dollars of spending on the AI boom.
For example, Cipher also announced Thursday that it would be borrowing $333 million to finance an expansion of that Barber Lake data center through a private placement of debt.
That offering will be secured, in part, by the warrants Google received to purchase Cipher common stock worth roughly 5.4% of the company. (Those warrants, by the way, look a lot more valuable today, with Cipher mining up double digits.) Google is also backstopping Fluidstack’s borrowing plans to finance its build-out to the tune of $1.4 billion.
For now, this makes financial sense. Alphabet — one of the most successful companies on the planet — needs the computing power to compete in the AI race. And the quickest way to get that capacity is to essentially cosign leases for the smaller companies taking the lead in that build-out, thereby lowering development costs and helping to bring projects into existence.
But in this deal alone, things get awfully complicated awfully quickly, as Alphabet is essentially the prime customer of, an important debt guarantor for, and potentially a significant owner in Cipher Mining, once it transfers the warrants into an ownership stake of more than 5%.
This isn’t, on its face, a terrible thing. There are precedents for circular funding relationships in industries like aerospace, as it developed from the 1920s to the 1950s.
But financial complexity does have a history of essentially hiding the level and locus of financial risks a system is building up, essentially during periods of heady optimism.
The market clearly loves it. But it’s worth pointing out that this agreement is a pretty good example of the byzantine financial structures that are increasingly accompanying plans for many billions of dollars of spending on the AI boom.
For example, Cipher also announced Thursday that it would be borrowing $333 million to finance an expansion of that Barber Lake data center through a private placement of debt.
That offering will be secured, in part, by the warrants Google received to purchase Cipher common stock worth roughly 5.4% of the company. (Those warrants, by the way, look a lot more valuable today, with Cipher mining up double digits.) Google is also backstopping Fluidstack’s borrowing plans to finance its build-out to the tune of $1.4 billion.
For now, this makes financial sense. Alphabet — one of the most successful companies on the planet — needs the computing power to compete in the AI race. And the quickest way to get that capacity is to essentially cosign leases for the smaller companies taking the lead in that build-out, thereby lowering development costs and helping to bring projects into existence.
But in this deal alone, things get awfully complicated awfully quickly, as Alphabet is essentially the prime customer of, an important debt guarantor for, and potentially a significant owner in Cipher Mining, once it transfers the warrants into an ownership stake of more than 5%.
This isn’t, on its face, a terrible thing. There are precedents for circular funding relationships in industries like aerospace, as it developed from the 1920s to the 1950s.
But financial complexity does have a history of essentially hiding the level and locus of financial risks a system is building up, essentially during periods of heady optimism.
