Why TeraWulf Stock Soared Again Today

Key Points

• After announcing a huge deal last week, TeraWulf said today that Google is now expanding the deal.

• Google will now back up to $3.2 billion in exchange for stock warrants that would give Google a roughly 14% stake in the company.

• TeraWulf also announced a $400 million raise that could dilute the stock.

• 10 stocks we like better than TeraWulf ›

Shares of TeraWulf (NASDAQ: WULF) jumped Monday, finishing the day up 4.6%. The spike comes as the S&P 500 and Nasdaq Composite were little changed.

TeraWulf, a Bitcoin miner and high-performance computing (HPC) data center company, announced that Alphabet's Google has committed to providing an additional $1.4 billion in backstop after announcing it would guarantee $1.8 billion last week.

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TeraWulf expands its deal

TeraWulf announced a major deal last week with Fluidstack, an artificial intelligence (AI) cloud provider. TeraWulf will provide 200 megawatts of compute power at its data center in New York.

As part of the deal, Google said that it would guarantee up to $1.8 billion if Fluidstack fails to make good on its lease obligations. That number is now $3.2 billion. Google will be awarded stock warrants that would give it a roughly 14% stake in TeraWulf if exercised. This backstop will help TeraWulf finance a major data center expansion, giving creditors more faith if things go south.

Image source: Getty Images.

AI Data center building is white hot

There is a gap between the amount of computing supply for AI and demand. That is leading to an enormous race to build new capacity, and companies like TeraWulf are reaping the benefits. They are, however, still unprofitable, and these buildouts are insanely expensive. They are relying on heavy amounts of debt to finance their growth, making them extremely sensitive to any significant downturns in AI demand. The company is also using stock sales to raise capital, announcing today that it will raise $400 million in a private placement that is likely to dilute shareholder value. I would avoid TeraWulf and other data center companies like it.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.