3 Reasons Investors Should Ignore Cipher Digital's Double Miss

Cipher Digital (NASDAQ: CIFR) delivered an excellent earnings report if you ignore the double miss. The company reported second-quarter earnings per share of -$0.65, which missed the analyst estimate by $0.42. Revenue came in at $24.84 million, which was below the $32.52 million consensus estimate.

Those numbers are based on Cipher Digital's crypto mining business, which is winding down. Artificial intelligence is the future of Cipher Digital's revenue, and it has made multiple steps in that direction.

Image source: Getty Images.

The Black Pearl site is generating revenue

The biggest catalyst is that Cipher Digital started delivering high-performance compute data center capacity in early August. It's two months ahead of schedule, and AI capacity revenue comes less than three years after the site's acquisition. The pivot from developmental land to monetized AI data center could have been faster if Black Pearl wasn't initially used for crypto mining.

Amazon (NASDAQ: AMZN) is the hyperscaler tenant for this site. The tech giant agreed to a 15-year deal for $5.5 billion, which will provide Cipher Digital with $367 million in annual recurring revenue. It doesn't mean the entire site has been monetized, so it may be early 2027 by the time it's fully commercialized.

"This accelerated delivery proves we can execute at scale, with speed, and without compromise in a challenging environment. As we continue to acquire new sites and sign new deals, our foundation of disciplined execution is what truly sets us apart," Cipher Digital CEO Tyler Page said in the press release.

An option for a 900-megawatt site can provide massive revenue growth

The second detail Cipher Digital announced in its Q2 business update is that it acquired an option for a 900-megawatt site near San Antonio, Texas.

The deal with Amazon covers 300 megawatts, so a 900-megawatt site can produce more than $1 billion in annual recurring revenue. By the time Cipher Digital secures the site and builds the facility, compute might command a higher premium.

The fact that it is an option also limits the initial financial impact of the deal. Cipher Digital has used corporate bonds to raise capital for its sites. An option gives Cipher Digital time to do research before fully committing to the site, and it can use some of the revenue from its Black Pearl site to fund the construction of this proposed 900-megawatt site.

Cipher Digital is already treating it like a done deal. "The site's flat, buildable terrain makes it well-suited for large-scale data center development, and its proximity to San Antonio positions it favorably for fiber connectivity," the company said in its Q2 press release.

As Cipher Digital acquires more land and constructs AI data centers, it can soon lean more heavily into cash flow than capital raises to fund future projects.

The Stingray facility is fully funded

The final big announcement from the Q2 business update was that Cipher Digital's Stingray site is fully funded after its bond offering. It will have a total site power capacity of 100 megawatts.

It's a smaller site, but that should help Cipher Digital complete and monetize the facility sooner. Amazon is the tenant for this site, which means it will instantly generate revenue upon completion.

While 100 megawatts is less than what Black Pearl offers, it's another revenue stream that can make Cipher Digital less reliant on debt financing in the future.

The amount of capital Cipher Digital has needed to raise from bonds has been one of its few weaknesses. The Stingray facility being fully funded changes the narrative. The company touted its ability to execute and deliver projects before deadlines. As that continues, the double miss in Q2 will look like an attractive long-term buying opportunity.

Marc Guberti has positions in Cipher Mining. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.