Riot Platforms, IREN, and MARA Drop Further as Bitcoin Miners Wrestle With the AI Headwinds
Leading Bitcoin (CRYPTO: BTC) mining companies that have pivoted toward artificial intelligence (AI) are facing significant headwinds. Most of their shares have given back the gains they made earlier this year, and short interest in the stocks is rising.
IREN (NASDAQ:IREN), the Australian company that received a $2 billion investment from Nvidia (NASDAQ:NVDA) dropped to $27, its lowest level since September last year, and 65% from its all-time high.
Riot Platforms (NASDAQ:RIOT) dropped to $13.72, down by 55% from its highest point this year. MARA Holdings (NASDAQ:MARA) fell to $7.53, its lowest level since February and 68% below its record high. Other similar companies like Core Scientific, Terawulf, Cipher Digital, and HIVE Digital have also slumped.
Short sellers have reaped billions of dollars as these companies have plunged this year. IREN has a short interest of 20.7%, while Riot and MARA have 12.8% and 26%, respectively.
Gartner Warned About Neocloud Companies
To a large extent, it made sense for Bitcoin miners to pivot to AI data centers. Bitcoin has been in a bear market this year, mining difficulty keeps climbing, and the halving, which occurs roughly every four years, cuts block rewards in half.
The artificial intelligence industry is also still booming, with companies like Microsoft, Meta Platforms, and Amazon spending billions of dollars a year on AI infrastructure. IREN has already reached a $9.3 billion deal with Microsoft (NASDAQ:MSFT).
The challenge, however, is that the AI data centers are highly expensive. VanEck has hinted that these companies need $50 billion in near-term funding. To do that, these firms are selling some of their Bitcoin and borrowing billions of dollars.
Gartner (NYSE:IT) recently warned that neocloud companies face $3.8 trillion in impairments by the end of 2030. They pointed out to the depreciation of their data centers as newer GPU models are launched.
At the same time, it expects that AI data center owners will need to generate $8.5 trillion in revenue to cover their announced capital spending, financing costs, and a 12% return on invested capital. At the same time, the total revenue is not expected to reach $3.6 trillion. The report noted that neoclouds are among the most exposed.
Fears of an AI Bubble and Rising Competition
IREN, Riot Platforms, MARA Holdings, and other Bitcoin miners are facing more challenges. For one, some analysts, including Michael Burry, David Rosenberg, and Ray Dalio, warned that the AI bubble is about to burst as interest rates rise.
Competition is also rising, with SpaceX (NASDAQ:SPCX) and Meta Platforms (NASDAQ:META) entering the industry. Meta has confirmed that is planning to lease its extra space to clients.
Depreciation is also rising. Its last earnings report showed that its depreciation and amortization stood at over $112 million, a significant portion of its $137 million in revenue. Riot’s and MARA Holdings’ D&A costs stood at over $98 million and $174 million, respectively.
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