Key points
- TeraWulf falls 15% despite bullish analyst ratings
- Why Morgan Stanley sees value in TeraWulf's contracts
- Why Cantor cut its TeraWulf target but kept an Overweight rating
TeraWulf (WULF) lost 15% this week, but three Wall Street firms remained bullish on the AI data center developer. Morgan Stanley and Cantor Fitzgerald maintained Overweight ratings, while TD Cowen began coverage with a Buy, according to analyst notes summarized by Stocktwits.
Shares closed at $11.68 on Friday, Oct. 16, down from $13.77 a week earlier, as investors also sold other AI data center builders that borrow to fund construction.
TeraWulf is converting former bitcoin mining sites into data centers for AI customers. On Oct. 5, TeraWulf signed an amended agreement to double contracted power at its Muskie campus in Kentucky to 1 gigawatt, subject to approval from the Kentucky Public Service Commission.
Morgan Stanley calls the stock mispriced
Morgan Stanley reiterated its $65 price target on Thursday, Oct. 15, after raising it on Oct. 9. Analyst Stephen Byrd said the decline was "at odds with underlying contract value and likely value creation from upcoming contracts."
Byrd said Morgan Stanley "rarely sees a stock as mispriced as WULF and other Powered Shell providers." Powered shell providers build data center buildings with power and basic infrastructure that tenants equip with computing hardware. The group also includes Cipher Digital (CIFR), Hut 8 (HUT), Riot Platforms (RIOT), and Galaxy Digital (GLXY).
He listed four catalysts ahead. They are a potential credit backstop for the Hawesville campus, lease signings at Muskie, cash flow from operating assets, and growth in Europe. Hawesville, also in Kentucky, is where TeraWulf signed a 20-year lease with Anthropic in July.
The $65 target is about 456% above Friday's close, by our arithmetic.
Cantor cuts its target but calls it a generational buy
Cantor analyst Brett Knoblauch lowered his TeraWulf target to $30 from $37 on Friday. He cut targets on seven AI data center stocks in all and kept Overweight ratings on each of them.
Knoblauch called TeraWulf, Hut 8, and Core Scientific (CORZ) a "generational buy." He said the three could rally 100% or more once fears about AI funding ease.
He also named the pressures on the group. They include rising interest rates, pressure on capitalization rates, possible capital spending overruns, and execution risks. He added political uncertainty and growing opposition to data centers.
TD Cowen says the leases are priced too cautiously
TD Cowen analyst Michael Elias started coverage on Monday, Oct. 12, with a Buy rating and a $21 price target. He said investors value TeraWulf's data center business at a 9% capitalization rate, which he considers too high.
A capitalization rate compares a property's annual net operating income with its value. For the same income, a higher cap rate implies a lower valuation.
Elias said the risk is lower than that rate suggests. He pointed to Fluidstack, an AI cloud provider and a key TeraWulf tenant. Google (GOOGL) has guaranteed part of Fluidstack's lease payments to TeraWulf.
TD Cowen's target is the lowest of the three, at about 80% above Friday's close.
What the stock did
TeraWulf touched $10.35 during trading on Thursday before closing at $12.62, then fell 7.5% on Friday.
TeraWulf is up about 2% this year but remains about 61% below its June 22 intraday high of $29.84.
TeraWulf will report third-quarter results on Friday, Nov. 6.
