Regarding the most artificial intelligence (AI)-adjacent sectors, technology, and communication services take the cake, but some other groups are sporting AI credentials.
Take the case of bitcoin miners, plenty of which reside in the VanEck Digital Transformation ETF (DAPP). Long viewed as, and rightfully so, one of the most crypto-correlated asset classes, bitcoin and other crypto miners are looking for avenues through which to diversify their revenue streams. In another way, those firms want to reduce the aforementioned crypto-correlations, and AI and hyper-computing (HPC) are helping them achieve that objective.
Combine the well-documented long-term opportunity set associated with AI and the underappreciated one tied to HPC, and it’s not a stretch to say this pair of growth outlets could prove to be compelling longer-ranging catalysts for exchange traded funds such as DAPP. A case can also be made that markets haven’t fully priced in the AI strides made by DAPP holdings, indicating that investors don’t have to pay up to embrace this “call option.”
AI Could Be Difference Maker for DAPP
There’s a lot of technical jargon to parse through, but the reality is AI/HPC can be major growth drivers for crypto miners, including those held by DAPP.
“Borrowing from Core Scientific’s capital expense estimates of $5 million to $8 million per MW for converting Bitcoin mining infrastructure to AI/HPC, we conservatively apply a $7.5 million per MW cost of conversion in our model, arriving at a total of ~$23.1 billion for the infrastructure alone,” according to VanEck research. “We also assumed that the collective pivot would require 1,681,600 Nvidia H100 GPUs, each costing $32,500 or a total of ~$54.7 billion—for the first generation alone!”
Too Much Debt
The VanEck report made another important observation. Many crypto miners are beset with too much debt, profligate share issuance, excessive levels of executive pay, or all three. The first two are often the result of needing cash to fund capital spending, but with AI/HPC, those clients, in essence, fund capex for crypto miners.
VanEck noted that while the intersection of crypto miners and AI/HPC is still in its infancy, there are challenges and opportunities, but the latter can be recognized in accretive, synergistic fashion, indicating that these “AI pivots” are practical for some DAPP member firms. Bottom line: there’s a new growth outlet for crypto miners and it could be highly lucrative.
“If AI/HPC comprises 20% of these miners’ energy capacity by 2027, and assuming they could fund the investment, we think the publicly traded bitcoin miners’ total additional yearly profits could exceed an average of $13.9 billion per year over 13 years, compared to the trailing 12 months net income for the group at -$335 million. After factoring in the 17% discount rate, in the aggregate, we estimate the net present value of this opportunity to be ~$37.6 billion,” concludes VanEck.
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