AI Data Centers Race for Power Contracts

Morgan Stanley forecasts a significant uptick in data center contracts, with powered-shell operators likely to secure numerous deals by October. This surge is driven by AI customers aiming to energize their projects before the close of 2027. The bank maintains an "Attractive" industry outlook, supporting its Overweight ratings on companies like Cipher, TeraWulf, Riot, Hut 8, and Galaxy.

Indicative financial models suggest substantial present equity value per watt for these powered-shell facilities. Lease rates have notably increased, and even a modest rise in average yield on cost could significantly enhance project valuations, effectively offsetting potential increases in interest rates.

TeraWulf's recent 482 MW Kentucky power agreement exemplifies this trend, featuring a long-term, take-or-pay obligation. This deal supports the leasing of significant capacity to AI firms and highlights the Justified campus's potential. The approximately 800 MW Muskie site is identified as a likely future contracting opportunity for TeraWulf.

In Texas, regulators' conditional Batch Zero process for ERCOT is viewed positively. Provisional project classifications are expected by August 31, with final determinations slated for a Public Utility Commission of Texas meeting on December 17. This regulatory clarity is crucial for the ongoing development and contracting within the region.