In our previous coverage on TeraWulf, we estimated the value of the Fluidstack deal to be $700 million in annual revenue. Management stated the lease was worth approximately $670 million with net operating income worth $565 million. The inflection point for this stock is fairly evident given the company recognized its first HPC leasing revenue in the third quarter of just $7.2 million, or more than 14% of revenue. This represents HPC capacity of 60MW by year-end that will expand roughly 6X to 366MW by end of 2026.
In the most recent report, an additional 168+ MW was announced with Google backstopping $1.3 billion in lease obligations in similar fashion to Terawulf’s existing deals. The deal may complicate the income statement as TeraWulf owns 50.1% of the JV, therefore, it’s possible the company recognizes 100% of the revenue yet sees about half of the net operating income. It comes with the added benefit of seeing lower capex costs, which may be the motivating factor behind the deal terms. For investors, if the company does not announce the deals on the attributable basis, then it requires an additional step to recalculate at 50.1%.
The debt for TeraWulf is rising quickly as the company had $712.8 million in cash and equivalents with debt of $1.5 billion by quarter end. However, debt has increased $4.2 billion in October alone to fund the upcoming data center buildouts. Here was the most recent update: “Turning our attention to the balance sheet. As of September 30, we held $712.8 million in cash and restricted cash with total assets amounting to $2.5 billion and total liabilities of $2.2 billion. In October, we closed over $4.2 billion in capital markets transactions, including $3.2 billion of 7.75% BB-rated senior secured notes due 2030 and $1.025 billion of 0% convertible notes due 2032.”
TeraWulf Optimistically Outlines 2GW Pipeline by 2028
As of August, TeraWulf outlined a pipeline of just 1.15 GW of gross capacity through 2030, with 522.5 MW of that capacity contracted out to Core42 and Fluidstack (excluding the recent JV).
Source: TeraWulf
This projection resulted in 600-650MW of available capacity through 2030, with TeraWulf laying out a framework to add ~175MW per year starting in 2027 to culminate in the full 600-650MW coming online by 2030, or 48+ months away. For the miner thesis that is built upon speed of power delivery, this projection does not appear as attractive to peers who could potentially deliver gigawatt scale sites over the same period.
As such, TeraWulf provided an updated, more aggressive and accelerated pipeline projection in Q3’s update, now targeting as much as 2GW of capacity by 2028 in an optimistic scenario. The updated projection below assumes the 1.1GW could come as early as next year, before scaling to 1.1 to 1.6GW by 2027 and potentially as high as 2GW by 2028. TeraWulf added that future capacity includes other potential joint venture sites, another 500MW of owned capacity, and a 1GW+ pipeline.
Source: TeraWulf
TeraWulf CEO Paul Prager said that he “would not be surprised if by year-end, we announced at least one, possibly two additional sites,” while CFO Patrick Fleury added that there were a handful of sites in consideration that could fulfill that 1GW pipeline.
Building on this, Prager said that TeraWulf “recently increased our annual target for new HPC signings from 100 to 150 MW per year to 250 to 500 MW per year [which] reflects the tangible progress we've made in advancing our development pipeline and the strength of customer demand.” This suggests that TeraWulf is looking to accelerate the development of this pipeline and quickly add this GW to its portfolio, yet the main question is how the company will be able to do so given its current developments are burning quite a big hole in its pocket.
Breaking Down TeraWulf’s Capacity and Timeline
In our previous coverage, TeraWulf stated CB-1 would generate revenue by end of October, CB-2 by the end of the December quarter and CB-3, CB-4 and CB-5 are on a tight timeline with the goal of being delivered within a year.
Here is the update:
- As stated in the intro, the first HPC revenue was reported from CB-1 (on time)
- CB-2 is on track for near year-end “subject, of course, to tenant fit-out requests, which will complete our delivery of 60 megawatts of critical IT for Core42.” (slight tone change as previously it was by end of December quarter)
- Regarding CB-3, CB-4 and CB-5, the update was more vague stating “CB-3 is more than 50% directed and the structure will be fully enclosed before year-end" with “CB-4 and CB-5 are already well underway with underground work beginning next week, field deliveries arriving in early December and building erection expected to begin before Christmas”
According to the investor’s presentation. CB-2 is expected to be operational and contribute to results in the December quarter for Core42, with Fluidstack’s 450MW at CB-3, CB-4 and CB-5 layering in through 2026. However, as you can see above, the commentary on the earnings call was less concrete.
The Risk for Bitcoin Miners is Execution – But Especially in Procuring More Power
The company increased the annual target for new HPC signings “from 100 to 150 megawatts per year to 250 to 500 megawatts per year” – which is stated as “HPC signings” and does not address the timeline around delivery.
Investors must essentially take the Miners at face value they will deliver with very little prior experience executing (and arguably, the challenges around executing will only get harder given it will be energy related – outside of their control):
“I'm not terribly worried about the HPC side. I feel pretty good about that and procurement capability and supply lines aren't what they were. I feel very good about that. I think that the key is going to be our ability to meet schedule and price. That's what the Street is looking for. That's what our customer wants. That's what we promised to our shareholders. So I'm very comfortable at 250 to 500. And as we grow, listen, we're building, as Patrick used to say, serial model # 6. As we get down to 10 or 11 and we find more efficacious ways to do this and needer ways to scale, then we could grow from there. But I think 250 to 500 is the right way to think about us for the coming year.”
An interesting exchange occurred when an analyst asked TeraWulf how they plan to get power for the 250 to 500MW annual delivery schedule. Initially, management sidestepped the question, and when pressed, their answer underscored that energy availability lies largely outside of their control.
This is a crucial point: even as TeraWulf scales its EPC and site-development capabilities, the real bottleneck remains interconnection and power procurement — both dictated by utilities, grid regulators, and the slow cadence of transmission upgrades. Management’s confidence in build execution (“the EPC side”) contrasts sharply with their limited influence over when and where new megawatts will actually be energized.
“John Todaro
Needham & Company, LLC, Research Division
Great. That's super helpful. And then second question, if we do just take a step back, I guess, how are you guys able to add more of the power pipeline? Like some of the stuff was procured pretty quickly like Abernathy. I would just have to think major hyperscalers, Neo cloud, maybe private equity, everyone is competing now. Just, I guess, give us — frame it up a little bit more for how you guys are able to win that.
Paul Prager
Co-Founder, Chairman & CEO
Yes. I'm not sure I understand the question. I mean — Abernathy didn't — I wouldn't look at that as came on real quickly. I would — again, we've had a long-term relationship now with Google and Fluidstack. And so we are aware of the strategy here, and they decided that bringing us alongside would be additive to the overall effort. But I'm not sure I understand the balance of your question.
John Todaro
Needham & Company, LLC, Research Division
I guess just the main crux of it is if we take a step back and there's such a power constrained environment, one of the biggest questions we get from investors is just how these guys are able to continue to procure capacity like that 250 to 500 megawatts you talked about when we are in still a constrained environment, and there's just likely so many bidders for these assets.
Paul Prager
Co-Founder, Chairman & CEO
Yes. I think the answer is — so some of them are looking at island generation where they bring their own power. Some of them are looking at high electrification sites that had former industrial uses and they're looking at repositioning them into data centers. And some of them are talking to utilities about figuring out if there's a way that they could work out a deal like the NextEra transaction.
I think they're following multiple strategies to get to the answer of they have long-term demand, and it's near term in terms of its immediate urgency, but they're looking at the 25- and 30-year deals. If you take a look at the Abernathy deal, it's 25 years.
So I'm — I can't tell you or opine to what the long-term answer is other than United States needs to build more generation. But I think everyone's figured that one out. The question is, are there sites that one can discover in the right regulatory frame set and from an environmental perspective, not too injurious to a customer that could enable a high-quality credit to come along and be a customer. And I think the answer is yes, but you got to know where to look.
I guess I should emphasize TeraWulf where to look, which is why I think prior to year-end, we'll be bringing on at least one, maybe two other sites.”
In perhaps the most interesting comment of the earnings call, TeraWulf’s management stated other Miners are providing “fictitious pipelines” – an important warning to investors that talk is cheap compared to what is required to stand up powered shells: “And again, I think unlike some of our peers, we're not telling you a fictitious pipeline of thousands of megawatts all in the same region. We're telling you about stuff when it's literally imminent and ready to go.”
There was another interesting comment on the call from management stating it could take 3-4 years in some instances to get power to some of the sites being covered as announced deals: “Demand is real, and it's a constant. And I think that — listen, I think there was a site out in Ohio the other day. They got a letter from AEP saying they were in the queue and they were in the queue for '26. And now you should probably not think about that power in '26, but you should think about it for like '29 and '30. And that is a way of saying that you've got to pick your sites really carefully. You have to understand what the grid is capable of. Are you in an area where the whole grid is only X and the demand is 3x that.
So it goes to the notion that you've got to have a very good handle where you site these things. But that then — when you go back to the customer and you say, hey, how do you want to think about it if you want to be in this region, you're okay moving from '26 to '27. The answer has been yes, universally. The answer from '27 to '28 is yes. I don't think you get the power problem solved by then. You've got hyperscalers now looking at island generation, which means they're going to bring their own power to the table, and that's at least four to five years away.”
>$5 Billion in Debt, Convertibles Raised Recently
Since August, TeraWulf has raised $5.2 billion in secured debt and convertible notes, including a major $3.2 billion raise, to help fund its data center expansion. In total, these three raises are equivalent to approximately 91% of TeraWulf’s current $5.7 billion valuation.
The two convertible note raises in late August and the end of October were both for ~$1 billion, with one a 1% coupon due in 2031 and the other a no-coupon due in 2032, giving TeraWulf time to scale operations and expand its data center business accordingly with minimal interest expenses associated with the funding.
However, the $3.2 billion in secured debt the company raised in mid-October came at a hefty 7.75% rate, meaning TeraWulf will face nearly $250 million in annual interest payments through 2030.
Cash flows and debt are rapidly coming into focus for AI data center stocks, as names like Oracle have recently come under pressure for the enormous debt load the company is expected to inherit to fund the its ambitious data center plans. For example, there is rumored to be a $38 billion debt offering as soon as next week, with Morgan Stanley stating the figure could be as high as $55 billion to $75 billion. For TeraWulf, the company is quickly taking on a high debt load to expand its data center business, yet post-sweep cash flows through 2030 are projected to be minimal.
Illustrative Revenue, Cash Flow Projections
TeraWulf is expecting a rather sharp revenue ramp through 2026 into 2027 as its capacity for Fluidstack comes online, with the company currently projecting CB-3 to be operational in Q1 2026, followed by CB-4 in Q3 and CB-5 in Q4 2026. TeraWulf’s current internal estimates point to 3x growth from $210 million in 2026 to $653 million by 2027.
Once the three buildings are operational, revenue is expected to flatline and increase per the annual escalators under the deal, with growth of just $23 to $25 million YoY (~3%) from 2028 through 2035.
Cumulatively, TeraWulf is roughly projecting revenue of ~$3.06 billion from 2025 through 2030 from data center hosting, with net operating income of $2.65 billion, an ~86.5% margin. However, despite the strong NOI generation, cash flows post-sweep (minus mandatory amortization, debt interest expense and a 50% sweep) are minimal.
TeraWulf is currently estimating cumulative post-sweep cash flows of $281 million through 2030, not even 10% of cumulative revenue. This is because TeraWulf is facing high mandatory amortization, from $281 million to $308 million from 2027 to 2030, and high interest payments on debt. This would leave TeraWulf with limited cash flow to fund additional data center projects or accelerate deployment timelines on its own.
Financials Overview
Revenue
TeraWulf announced preliminary Q3 revenue of $48 million to $52 million, up approximately 84% YoY and coming in shy of the $56.3 million consensus estimate. Actual revenue for the quarter was $50.6 million, up 87% YoY and slightly ahead of the midpoint of the preliminary guide.
The company’s first HPC data center, CB-1, was operational in August, making Q3 the first quarter blending both BTC mining and HPC revenues, which were just $7.2 million in Q3.
AI Revenue
TeraWulf recognized its first HPC lease revenue of $7.2 million in Q3, accounting for 14.2% of revenue. HPC lease revenue has a visible path to increase sequentially in Q4 as the 22.5MW CB-1 lease is now active and has a full quarter of contribution, and the 50MW CB-2 is nearing completion with operations expected before year-end.
HPC’s adjusted net operating income margin was $5.2 million, or ~72%, which was below the ~85% guided due to partial lease revenue recognized in Q3 and development costs incurred at Cayuga. This is expected to normalize in Q4 to around the 85% level.
Margins and EPS
Margins show little improvement down the line from last year, though this is to be expected considering TeraWulf is still ramping capacity through 2026.
GAAP gross margin (excl depreciation) was 66.1%, up from 53.6% last quarter and 45.8% in the year ago quarter. Adjusted gross margin (incl depreciation) was 13.7%, down from 14.2% last quarter but up from (12%) in the year ago quarter.
GAAP operating margin was (48.8%) in Q3, widening from (32.7%) last quarter but improving from (58.1%) in the year ago quarter.
GAAP net margin was (899.7%) in Q3, impacted adversely by a ($424.6 million) change in warrant and derivative liabilities. Thus, GAAP net loss was ($1.13), not comparable to the ($0.05) estimate.
Preliminary adjusted EBTIDA for Q3 was forecast at $15 to $19 million, or a 34% margin at midpoint. Actual adjusted EBITDA was $18.1 million for a 35.8% margin, at the higher end of the preliminary range.
Cash Flows and Balance Sheet
TeraWulf reported $713 million in cash and equivalents, with current convertibles outstanding of $1.06 billion, though this does not include the recent ~$4.2 billion raised in October. However, TeraWulf expects to use all of the recent funding for the Fluidstack and CB-2 buildouts through 2026.
Pro-forma liquidity projected for 2026 is expected to be approximately $1 billion, including cash on the balance sheet; however, this is expected to go towards the joint venture and pipeline M&A, leaving little left over to build on more sites through 2026 without additional funding.
Operating cash flow was ($36.7 million) in Q3 for a (48.8%) margin, while free cash flow was approximately ($268.3 million) for a (530.4%) margin. Put another way, TeraWulf spent more than 5X its revenue on PP&E in the quarter.
Conclusion
TeraWulf is progressing with its HPC pivot as the company is now recognizing HPC related revenue, while eyeing a strong ramp in HPC revenue through 2027 as substantial capacity for Fluidstack comes online. Notably, execution risks for all Bitcoin Miners remain front and center as the bottleneck around power will intensify.
Despite the sharp revenue ramp over the coming eight to ten quarters, amortization and debt interest payments will keep post-sweep cash flows minimal, while future development of a 1GW pipeline or accelerated deployments will likely require more cash.
As you’ll see, there is a common theme to where many of the AI infrastructure plays will require the market being in an optimistic mood as the opportunity is immense yet the path to execution is tricky. We will participate when the correct setup materializes, but we will also step aside if needed.
Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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