'Clear scale up path': Bernstein sees 80% upside for Riot after reported $9.1 billion Anthropic deal

Analysts at research and brokerage firm Bernstein raised their price target for bitcoin miner-turned-AI infrastructure provider Riot Platforms (RIOT) to $35 from $30 while maintaining an Outperform rating after it signed a $9.1 billion data center agreement with a "leading frontier AI lab" reported to be Anthropic. 

Riot shares rose more than 27% in pre-market trading on Tuesday at one point before paring gains to around $22.60, according to The Block's RIOT price page. Bernstein's 12-month target implies around 80% upside potential from Monday's closing price of $19.40.

The 20-year colocation lease covers 191 IT megawatts at Riot's Rockdale campus in Texas and is expected to generate $457 million in annual recurring revenue, according to Bernstein. IT MW measures the actual electrical power consumed solely by IT equipment, like servers and network switches, excluding the energy required for facility cooling, lighting, and infrastructure.

In a note to clients on Tuesday, the firm's analysts led by Gautam Chhugani estimated average annual net operating income between $365 million and $411 million, with capital expenditure of $2.1 billion to $2.3 billion. Riot has also secured a $573 million interim facility from Morgan Stanley to fund early equipment procurement, the analysts noted.

Bernstein said the economics of the deal prompted it to raise its modeled annual revenue yield for Riot's AI colocation business to $2.2 million per IT MW from $1.5 million previously, while increasing its estimated EBITDA margin to 84% from 80%. The firm models 391 IT MW of total contracted capacity by 2030. 241 IT MW are currently under contract — 50 MW with AMD and 191 MW with the frontier AI lab. The remaining 150 IT MW reflects additional deals Bernstein expects Riot to secure on similar terms.

The analysts also pointed to Riot's non-binding letter of intent with a single tenant for its 1 GW Corsicana site, saying the latest announcements provide a "clear scale up path" for monetizing the company's Texas infrastructure.

AI colocation overtakes bitcoin mining in Bernstein valuation

AI colocation contributes about $12.3 billion, or 84%, of Riot's $14.7 billion target enterprise value under Bernstein's sum-of-the-parts model. Bitcoin mining accounts for roughly $1.7 billion, or 11%, and its bitcoin holdings contribute $740 million, or 5%, the firm said. Accounting for net debt, Bernstein targets a market capitalization of approximately $13.15 billion within the next 12 months.

The analysts project Riot's AI colocation revenue to reach around $900 million by 2030, up from about $600 million in their prior model, with AI EBITDA projected at roughly $700 million from $500 million previously.

However, such growth requires substantial funding, with Bernstein estimating Riot will need to raise another $3.7 billion in secured financing for its modeled buildouts, equal to roughly 90% of project capital expenditure. The analysts cited financing, alongside construction execution and Riot's concentration in Texas, as risks to its AI expansion.

Riot holds 11,380 BTC as of June 30, worth about $731.5 million at current prices, from a high of 19,368 BTC, according to Bitcoin Treasuries data. Bernstein said the company has been selling its bitcoin production and reserves to help fund its data center buildout.

Gautam Chhugani maintains long positions in various cryptocurrencies. Bernstein or its affiliates own at least 1% of a class of Riot common equity. Certain Bernstein affiliates also act as market makers or liquidity providers in Riot debt securities.