Why Shares of Riot Platforms Are Surging Today
Key Points
Riot Platforms will purchase 200 acres of land that it currently occupies.
Riot will then lease the land to Advanced Micro Devices for data center capacity.
It has not been uncommon for Bitcoin miners to transition their data centers to providing artificial intelligence capacity.
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Shares of the Bitcoin miner Riot Platforms (NASDAQ: RIOT) traded nearly 13.5% higher today, as of 1:11 p.m. ET. The company announced the acquisition of land and a lease agreement with chipmaker Advanced Micro Devices as it moves further into the data center space.
From Bitcoin miner to data center play
Bitcoin miners operate large data centers because the cryptographic puzzles they must solve to mine new Bitcoin require a tremendous amount of energy. However, more Bitcoin miners are transitioning to data centers for artificial intelligence, given AI's popularity and the fact that the majority of Bitcoin tokens have already been mined.
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Riot plans to acquire 200 acres of land at its Rockdale data center site, which it currently occupies, for $96 million. The deal will be funded by the sale of 1,080 of Riot's Bitcoin. Located in Rockdale, Texas, the Rockdale site is North America's largest Bitcoin mining facility by developed capacity, and has a total of seven buildings with various immersion- and air-cooling technology systems.
Riot will then lease 25 megawatts (MW) of critical information technology load capacity to AMD, with the potential to expand by another 200 MW.
"I am pleased to share the substantial progress we have made at Rockdale, which expands our fully approved data center power portfolio to 1.7 gigawatts and, through the signing of a data center lease with AMD, firmly establishes Rockdale as a leading data center development opportunity," Riot's CEO Jason Les said in a statement.
An exciting development, but investors should be cautious
The move by Riot certainly makes sense, given how big an industry AI is going to be and how much data center capacity it will require. Still, the stock trades at 54 times earnings, and there are many questions about the data center business, such as how commoditized it will become.
Data centers are also heavily dependent on the future of AI, which may not necessarily be a linear path. For this reason, I remain cautious on the name and only recommend a smaller, speculative position at most.
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Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Advanced Micro Devices and Bitcoin. The Motley Fool has a disclosure policy.
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