Key Points
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Cipher Digital stock fell 53.9% in October as AI financing fears swept the sector.
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An $850 million convertible debt offering led to back-to-back double-digit drops.
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Cipher’s next leases will show whether its growth plans can justify the heavy borrowing.
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October was a rough month to own Cipher Digital (NASDAQ:CIFR). According to data from S&P Global Market Intelligence, the stock fell 53.9%, while the S&P 500 barely blinked with a 0.9% dip.
The data center developer was already sliding alongside other AI infrastructure stocks as investors grew nervous about the sector’s heavy borrowing needs. Cipher stood out by raising $850 million of convertible debt on Oct. 13.
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The convertible that spooked the market
On paper, the deal sounds almost too good. Cipher sold convertible notes due 2032 with a 0% coupon, so it pays no interest for six years. Noteholders can swap their bonds into stock at $15.31 per share, and Cipher spent about $90 million on a capped call to blunt dilution. It also retired about $166 million of older 2030 notes in exchange for fresh shares.
Investors focused on dilution and timing. The stock fell 12.8% on Oct. 13 and another 12.4% the next day as the bond deal priced.
Part of the proceeds funded a $359 million investment in Cipher’s Barber Lake campus, where tenant change orders and rising labor costs had pushed construction expenses above earlier guidance.
Then came a double whammy on Oct. 30. A Barclays analyst warned that AI financing problems were already here, and a record $6.3 billion Binance hack knocked crypto stocks around. Don’t forget that Cipher used to focus on Bitcoin (CRYPTO:BTC) mining rather than AI computing, and that 78% of Q3 revenues still came from Bitcoin mining. So the stock caught both punches on the chin and fell another 10%.
Image source: Getty Images.
What October’s sell-off priced in
Here’s the odd part. Cipher has $16.6 billion in contracted revenue, with leases averaging 17.3 years. Management expects roughly $864 million of annual net operating income once its three contracted campuses stabilize. At the end of October, the whole company was worth about $3 billion. CEO Tyler Page described these sites as AI expressways that will collect tolls for decades.
But Cipher owes about $6.7 billion, its next projects need more capital, and the credit market isn’t feeling generous. Construction costs remain under pressure, and nearly all of its sites sit in Texas, where data center regulation faces growing scrutiny. Those concerns popped up again in early November, when the stock showed extreme volatility around Cipher’s mixed third-quarter report and the midterm elections.
One strange silver lining: with shares under $8, that $15.31 conversion price looks a long way off. Dilution from the new notes isn’t an urgent problem at today’s prices, though a lot can happen before 2032.
For long-term investors, the key question is whether Cipher can sign new leases on terms that justify its heavy borrowing. Its 5.9-gigawatt development pipeline offers plenty of opportunities. The financing environment will limit how many it can pursue.
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Anders Bylund has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
