Accelerate the transformation from “mining” to an AI data center operator! Cipher (CIFR.US) reversed year-on-year losses in Q3 and landed its first HPC revenue

The Zhitong Finance App learned that the most important change in the third quarter results report of Cipher Digital (CIFR.US), which recently accelerated transformation from a Bitcoin miner to a large developer and operator of high-density AI/HPC (high-performance computing) data centers, was the first confirmation of AI/HPC rental revenue: Black Pearl began leasing after the initial capacity was delivered, and the company switched from a Bitcoin miner to an AI data center developer and operator, taking a step where revenue can be verified. However, the new business has yet to fully replace the old business, and it is currently not possible to equate the initial lease collection with the complete completion of the transformation process from a mining company to an AI data center operator.

According to the company's latest performance report, total revenue for the third quarter was approximately US$26.701 million, down 62.8% year on year and up 7.5% month-on-month; of this, HPC-related rental revenue was US$5.852 million, accounting for about 21.9%. The company's net profit attributable to common shareholders in the third quarter was US$30.55 million, with a loss of US$3.283,000 for the same period last year. Judging from this net profit benchmark, the company can be described as turning a loss into a profit for the first time in nearly three years; adjusted EBITDA changed from a profit of US$40.79 million to a loss of US$9.963 million, which largely indicates that book losses have not yet responded to the overall improvement in profitability of continuing operations.

Compared with the consistent revenue forecast of $40.63 million compiled by Zacks before the earnings report, actual revenue was about 34.3% lower. Investors need to evaluate two facts at the same time: the contraction in mining revenue is affecting current results, and the AI revenue contribution associated with data center rents focusing on AI GPU computing power cluster services is still in its infancy. The speed of subsequent computer room delivery and leasing will determine when the revenue gap will be filled.

The $16.6 billion lease supports the vision: scarce electricity must be turned into deliverable computer rooms

According to the latest financial data, by the end of September, the company had signed a contract for a total HPC facility capacity of 700 MW, with cumulative revenue of 16.6 billion US dollars during the contract period, and a weighted average rental period of 17.3 years. Furthermore, the company's estimated average annual net operating income (NOI) of about US$843 million is revenue for the future specified period minus project operating expenses. It does not deduct the company's headquarters expenses, financing costs, and capital investment, and cannot be directly used as shareholders' free cash flow. That is, the company's latest estimate is that during the contract forecast period from August 2026 to July 2041, the average annualized project net operating income is about US$843 million; this indicator has not deducted the company's headquarters expenses, financing costs and capital investment, and cannot be directly equivalent to shareholders' free cash flow.

The estimated monthly project net operating income (NOI) for the period of August 2026 to July 2041 was calculated as an average of the estimated monthly project net operating income (NOI) for the period from August 2026 to July 2041 and multiplied by 12. The end point corresponds to the end of the basic rental period of the Black Pearl project. Therefore, it indicates how much project-level operating revenue the company expects to generate on average each year during this period, which does not mean that it can achieve US$843 million in 2027 or every year; changes in installment delivery, leasing time, and rent will vary from year to year.

Barber Lake best reflects the value and cost of this transformation: the leasing arrangement was extended to 20 years, with cumulative contract revenue of about US$9.1 billion; data offices plan to deliver and start leasing in batches from the fourth quarter of 2026 to the first quarter of 2027. However, customer needs and design changes brought additional investment, and the company covered the first 359.3 million US dollars exceeding the original budget; about 50% of the costs above this threshold were compensated by tenants through long-term additional rent. Contracts are longer and revenue visibility is higher, but upfront capital burdens also increase.

Customer demand adjustments and design changes increased construction costs for the Barber Lake project. According to the cost sharing arrangement, of the total amount exceeding the original budget, the first 359.3 million US dollars will be borne by Cipher; if the overspending is further expanded, the portion exceeding 359.3 million US dollars will be compensated by 50% by the tenant, and the rest will still be borne by Cipher. Tenants' compensation will be paid gradually over a 20-year rental period through additional rent and include the agreed return on capital. As a result, although this arrangement shared part of the overexpenditure, Cipher still had to endure a large upfront capital investment and a long payback period.

The latest update expanded the development pipeline to approximately 5.9 GW, but development reserves do not equal signed, electrified, or financed capacity. Looking at engineering and business models, Cipher's strengths lie in power acquisition, land, and project construction capabilities: AI tenants need high-density computer rooms with sustainable operation and reliable power supply and cooling, so mining transformation is far more than just replacing computing equipment. The company is also developing natural gas feeder lines to support potentially up to 2.5 GW of on-site power generation to add power supply paths beyond grid access; its value ultimately depends on actual commissioning dates and unit construction costs.

Zero-interest financing still has costs: share price revaluation depends on cash return per share

In October, the company completed US$850 million zero-interest convertible bond financing due in 2032 to support Barber Lake's additional equity investment and project development. The initial share conversion price was approximately $15.31; the company paid an additional $89.7 million to purchase capped call options to mitigate potential dilution and replace $165.9 million in old convertible bonds with approximately 40.7 million shares. Zero interest reduced recent cash interest burdens, but share capital dilution, principal repayment, and financing support costs still exist.

This is also the key difference between Wall Street institutional analysts who are optimistic about long-term value, yet the market is still holding down stock prices. UBS first covered a “purchase” with a target price of $23 in September, emphasizing tenant quality, lease economy, and delivery progress; Cantor maintained “overallocation” in October, but lowered the target price from $28 to $19. Based on the closing price of 7.29 US dollars after a 10% drop on October 30, the two implied room for growth of about 215.5% and 160.6% respectively, both of which were judged before the release of this financial report.

The main line of market investment in Cipher is shifting from Bitcoin price elasticity to long-term infrastructure cash returns. The most powerful catalyst for the next phase is the delivery of more capacity according to budget and the commencement of rent collection; the most important constraint is how much additional capital and financing arrangements will consume ultimately attributable to each share of earnings. Only if rent growth gradually covers operation, financing, and continued investment can huge leases drive sustainable revaluation.