A political backlash has led governors around the country to slow or stop new data center construction, from New York to Texas. That's hurt stocks of companies that produce electricity for data centers, like power plant owners Constellation Energy and NRG.
One analyst thinks a separate group of companies with access to lots of electricity-and a growing business model of selling that power to data centers-can be a safe harbor in the selloff.
Bitcoin miners are well-positioned to ride out the anti-AI fervor, says Morgan Stanley analyst Stephen Byrd. Among the stocks he expects to benefit amid the backlash are Cipher Digital, Hut 8, Galaxy Digital, MARA Holdings, and Riot Platforms.
Bitcoin mining firms own warehouses full of computers that they use to generate new cryptocurrencies. In the past couple of years, several miners have been converting the warehouses into AI data centers and renting the power or the warehouses themselves to tech companies.
The AI business model can generate steadier returns than Bitcoin, insulating the miners from the ups and downs in crypto prices. As miners shift to the data center model, their stocks have traded like AI names.
Unfortunately for them, AI power stocks have done badly in recent weeks as states pause approvals for new data centers looking to hook into the electric grid. The CoinShares Bitcoin Mining and Digital Power ETF is down 16% over the past month.
But Byrd says that investors are misunderstanding the risks. Most of the miners already have access to the electric grid at their existing sites, so they're less exposed to the political backlash.
While some new Bitcoin-to-AI projects in states like Texas may see delays, most Bitcoin miners are still in a strong position to convert their warehouses for AI use. And being connected to the grid is worth more money now than ever before.
"Beyond just Texas, a lot of data center projects have run into cancellations, delays, lack of approval, and that just makes these companies' sites more valuable," Byrd said in an interview.