Executive Summary / Key Takeaways

• Infrastructure-First Arbitrage: CleanSpark has evolved from a Bitcoin miner into a digital infrastructure platform that monetizes power assets across multiple compute paradigms, creating a unique ability to pivot between Bitcoin mining and AI/HPC hosting based on whichever delivers superior risk-adjusted returns per megawatt.

• Capital Allocation Mastery: The company has achieved explosive growth (102% revenue increase to $766M in FY2025) while returning over $460M to shareholders through stock buybacks and maintaining minimal equity dilution, funded by strategically-timed 0% convertible notes that leverage Bitcoin's institutional acceptance.

• Operational Moats in Energy Management: With 50 exahash of operational capacity at 16.7 W/TH efficiency and a direct cost of $42,890 per Bitcoin mined, CleanSpark's power optimization expertise creates a durable cost advantage that allows it to remain profitable even when Bitcoin prices decline or network difficulty increases.

• AI/HPC Pivot as Second Growth Engine: The acquisition of 285 MW in Texas and partnership with Submer for modular data centers positions CleanSpark to capture the "insatiable" demand for AI compute, with potential revenue per megawatt 10x higher than Bitcoin mining, though execution risk remains high given the "build-it-and-they-will-come" nature of the strategy.

• Critical Variables to Monitor: The investment thesis hinges on whether CleanSpark can secure long-term tenants for its initial AI sites (Sandersville and Texas) before committing capital, and whether its Bitcoin treasury yield strategy (targeting 4-6% annualized returns) can generate sufficient cash flow to fund the AI transition without diluting shareholders.

Setting the Scene: From Energy Roots to Digital Infrastructure

CleanSpark's journey began in 1987 as Stratean Inc., but the modern company emerged in November 2016 when it adopted its current name and began developing energy management solutions. This energy heritage explains everything about its current positioning. While most Bitcoin miners entered the industry as crypto speculators, CleanSpark arrived with deep expertise in power optimization, microgrids, and energy efficiency. When the company pivoted into Bitcoin mining in December 2020 through the acquisition of ATL Data Centers, it wasn't abandoning its energy roots—it was applying them to what it correctly identified as the ultimate power-intensive compute application.

The industry structure reveals why this matters. Bitcoin mining has evolved from a garage-based hobby into an industrial-scale power arbitrage business where success depends entirely on securing low-cost electricity and deploying it with maximum efficiency. The global network hash rate has grown exponentially, and the April 2024 halving cut block rewards in half, squeezing margins for all but the most efficient operators. Simultaneously, the AI revolution has created a parallel demand explosion for high-performance computing infrastructure, with hyperscalers and AI companies scrambling to secure power capacity. CleanSpark sits at the intersection of these two megatrends, uniquely positioned to allocate its power resources to whichever market offers superior returns.

CleanSpark's infrastructure-first thesis means it prioritizes control of power and land over simply deploying miners. As of September 2025, the company controls approximately 1,027 MW of contracted power capacity across Georgia, Tennessee, Mississippi, and Wyoming, with an additional 285 MW in Texas scheduled for energization in early 2027. This power portfolio isn't just a cost input; it's the strategic asset that enables the company's dual-pronged strategy. While competitors chase hash rate growth at any cost, CleanSpark evaluates every megawatt for its optimal use case—whether that's Bitcoin mining, AI/HPC hosting, or grid balancing services.

Technology, Products, and Strategic Differentiation: The Power of Optionality

Bitcoin Mining: The Cash-Flowing Foundation

CleanSpark's Bitcoin mining operations generated $766.3 million in FY2025 revenue at a 55% gross margin, mining 7,873 bitcoins with an average operating hash rate of 45.60 EH/s (peaking at 50 EH/s in June 2025). The company's fleet efficiency of 16.70 W/TH represents a significant improvement from 18 J/TH in December 2024, achieved through strategic deployment of 19,000 S21X XP immersion units operating at 13.5 joules per terahash.

This efficiency directly determines survival during Bitcoin's cyclical downturns. With an average energy cost of $0.06 per kWh and a direct cost of $42,890 per Bitcoin mined, CleanSpark maintains a substantial margin even when Bitcoin prices decline. In Q3 2025, when mining difficulty increased and power prices rose due to winter storms, the company's cost per Bitcoin reached $44,806—still far below the average spot price of $98,500 during the period. This ability to absorb external pressures through operational gains creates a durable competitive advantage over less efficient operators who operate fleets above 20 J/TH.

The company's Digital Asset Management (DAM) function, launched in April 2025, transforms the Bitcoin treasury from a passive holding into a productive capital asset. By writing covered calls and employing "Spot Plus" strategies, CleanSpark generated $9.3 million in premiums in Q4 2025, achieving an effective cash price of nearly $116,000 per Bitcoin sold—$4,184 above spot price. This strategy provides non-dilutive funding for operations and growth while maintaining Bitcoin exposure. The company targets a 4-6% annualized yield on its 13,000+ Bitcoin treasury, which could generate $40-60 million annually in additional cash flow.

AI/HPC Hosting: The High-Margin Growth Vector

CleanSpark's October 2025 pivot to AI compute represents a strategic recognition that power assets can generate superior returns serving AI workloads than mining Bitcoin. The company acquired 271 acres in Austin County, Texas, with 285 MW of long-term power supply agreements, specifically for a "purpose-built AI factory." This site will be developed in partnership with Submer, a leader in modular AI data center design, which promises 10-15% cost savings and faster deployment than field-built facilities.

The economics of this pivot are compelling. While Bitcoin mining generates approximately $1 million in revenue per megawatt, AI/HPC hosting can command $10 million per megawatt—10x higher. However, the build cost is also 10x higher, and the "build-it-and-they-will-come" risk is substantial. Management acknowledges this explicitly, stating they are "focused on first securing tenants for Sandersville and Houston" before committing capital. This demonstrates capital discipline: CleanSpark won't convert mining sites to AI without long-term contracts that provide superior risk-adjusted returns.

The Sandersville, Georgia site (250 MW) offers immediate opportunity due to its proximity to Atlanta Hartsfield Airport, providing low-latency fiber access that AI customers demand. The company's modular approach with Submer allows it to build "MEP solutions " in a factory that can be rolled into powered gray shells , dramatically reducing time-to-market. In an industry where customers are seeking "rapid delivery" and hyperscalers are "canceling soft commitments" to co-location contracts, CleanSpark's speed and flexibility become competitive differentiators.

Financial Performance & Segment Dynamics: Evidence of Strategy Working

Revenue Growth and Margin Expansion

CleanSpark's FY2025 results provide compelling evidence that its infrastructure-first strategy is working. Revenue grew 102% to $766.3 million, driven by a 97% increase in Bitcoin mined and a 97% increase in average Bitcoin price. More importantly, gross margins held steady at 55% despite the halving event, which reduced block rewards by 50%. This margin resilience demonstrates the company's ability to offset external headwinds through operational improvements and fleet efficiency gains.

The quarterly progression tells a story of accelerating operational leverage. In Q4 2025, revenue increased 13% quarter-over-quarter while gross margins expanded two points to 56.5%. Normalized adjusted EBITDA grew 25% to $97 million, representing a 43% margin. This expansion occurred despite rising energy costs in Q2 2025, when winter storms drove up power prices in the Southeast. The company's ability to nearly match the difficulty change through efficiency gains shows that its cost structure is becoming more resilient.

Capital Allocation: The Non-Dilutive Growth Engine

CleanSpark's capital strategy represents a masterclass in funding growth without diluting shareholders. In November 2025, the company closed an upsized $1.15 billion 0% convertible notes offering with a 27.5% conversion premium and 6.25-year term. The proceeds funded a $460 million stock buyback (reducing shares outstanding by over 10%), repaid $200 million in lines of credit, and provided capital for the AI data center strategy.

This demonstrates management's confidence that the stock is undervalued—CFO Gary Vecchiarelli noted that "book value is greater than our market cap," nudging them toward buybacks over equity issuance. The 0% coupon reflects institutional acceptance of Bitcoin as collateral, allowing CleanSpark to borrow at rates far below typical growth companies. It also provides $400 million in undrawn credit capacity for opportunistic acquisitions, giving the company counter-cyclical firepower to acquire distressed assets during downturns.

The company's Bitcoin treasury strategy further enhances capital efficiency. With over 13,000 Bitcoins (fair value $1.19 billion as of September 2025), CleanSpark can borrow against this collateral at favorable rates rather than selling Bitcoin and incurring tax consequences. The company maintains Bitcoin-backed credit lines with $400 million capacity, using them "opportunistically for accretive acquisitions." This approach transforms a volatile asset into productive capital, funding growth without equity dilution or forced selling during bear markets.

Balance Sheet Strength and Liquidity

As of September 2025, CleanSpark held $1.32 billion in current assets against $821 million in total debt, resulting in minimal net debt. The current ratio of 4.18 indicates strong liquidity, while the debt-to-equity ratio of 0.38 remains conservative for a capital-intensive business. This provides the financial flexibility to weather Bitcoin downturns while investing in the AI pivot.

The company's cash position of $42.9 million appears low relative to its scale, but this is intentional. CleanSpark has shifted from a "near-100% HODL strategy" to using a portion of monthly Bitcoin production to fund operations, minimizing cash drag. The DAM team's yield generation targets 4-6% annually on the Bitcoin treasury, potentially adding $40-60 million in non-dilutive cash flow. This aligns with the company's core principle: avoid equity dilution at all costs.

Outlook, Management Guidance, and Execution Risk

Bitcoin Mining: Efficiency Over Scale

Management's guidance for Bitcoin mining reflects a mature, disciplined approach. Rather than chasing hash rate growth at any cost, CleanSpark intends to "continue increasing its computing power through calendar year 2025 and beyond" while focusing on efficiency and market share capture. The company expects to push its hash rate to 57 exahash with active projects, with a vendor option supporting growth to 65 exahash.

This measured approach prioritizes profitability over vanity metrics. Former CEO Zachary Bradford noted that the company "welcomes when we see miners exit the space to pursue other avenues because it creates counter-cyclical opportunities." This philosophy positions CleanSpark to acquire efficient miners at discounted prices during market downturns, rather than overpaying during bull markets. The deployment of 19,000 S21X XP immersion units (13.5 J/TH) through calendar 2026 will further improve fleet efficiency, potentially reducing the cost per Bitcoin below $40,000.

AI/HPC: The Tenant-First Approach

The AI/HPC strategy's success depends entirely on execution. Management is explicitly avoiding the "build-it-and-they-will-come" mentality that has burned other miners pivoting to AI. Instead, they are "focused on first securing tenants for Sandersville and Houston" before committing capital. This reduces the risk of stranded assets and ensures that AI investments generate immediate returns rather than speculative future value.

The demand signals appear strong. CEO Matt Shultz described "strong multiple layer inquiries about Sandersville specifically" and noted that "I don't think there's any question that you're gonna see a lease much quicker than a year." The partnership with Submer provides a modular building approach that increases speed to market and saves 10-15% over field deployments. However, the cost to build AI/HPC infrastructure ($10 million per MW) is 10x higher than Bitcoin mining ($1 million per MW), meaning a single failed site could consume significant capital.

Management's guidance suggests the AI business will provide "stable cash flows and high margins" that help navigate Bitcoin volatility. The target of 4-6% yield on the Bitcoin treasury, combined with potential AI hosting revenue, could generate $100-150 million in annual cash flow from non-mining activities by 2027. This begins to diversify CleanSpark away from pure Bitcoin exposure, reducing earnings volatility and potentially justifying a higher valuation multiple.

Risks and Asymmetries: How the Thesis Can Break

Bitcoin-Specific Risks

The most obvious risk is Bitcoin price volatility. With 43.9% of mining revenue consumed by energy costs, a sustained drop in Bitcoin price below $50,000 would compress margins significantly. The halving cycle presents another structural challenge—while CleanSpark has navigated the 2024 halving well, future halvings will continue reducing block rewards. Management's comment that "Bitcoin's value may not adjust to compensate for this reduction" acknowledges this risk.

Regulatory uncertainty remains a key concern. While the GENIUS Act and Clarity Act provide tailwinds, potential energy consumption regulations or import tariffs on mining equipment could increase costs. The company notes it is "well-insulated from near-term tariff risks" due to proactive procurement, but long-term trade tensions could impact ASIC supply chains.

AI/HPC Execution Risk

The AI pivot's primary risk is tenant concentration and timing. If CleanSpark cannot secure long-term contracts for its Sandersville and Texas sites, it faces a choice: leave the capacity idle (missing revenue) or convert it to Bitcoin mining (missing the 10x revenue opportunity). Former CEO Zachary Bradford warned that "if we were to take down any one of our sites for 2 or 3 years to do a full rebuild, how much revenue we're going to miss out on?" This opportunity cost could be substantial.

Competition from established data center operators like Equinix (EQIX) and Digital Realty (DLR) presents another challenge. These companies have decades of relationships with hyperscalers and deep expertise in data center operations. CleanSpark's partnership with Submer helps, but the company is still building its track record in AI/HPC hosting.

Capital Structure and Liquidity Risks

While the 0% convertible notes are attractive today, they create future dilution risk if the stock price rises above the conversion price. The company entered into capped call transactions at a cost of $90.35 million to offset this dilution, but the risk remains. Additionally, the Bitcoin-backed credit lines, while useful, expose the company to margin calls if Bitcoin prices fall significantly.

Competitive Context and Positioning

CleanSpark operates in a bifurcated competitive landscape. In Bitcoin mining, it competes with MARA, RIOT, HUT, and IREN. In AI/HPC, it faces Equinix, Digital Realty, and CoreWeave. Its unique position is the ability to compete in both markets with the same power assets.

Bitcoin Mining: Efficiency vs. Scale

With 4.3% of global hash rate, CleanSpark trails MARA (5-7%) and RIOT (4-6%) in scale but leads in efficiency and capital discipline. MARA's debt-to-equity ratio of 0.70 and RIOT's 0.25 compare to CleanSpark's 0.38, but CleanSpark's 55% gross margin significantly exceeds MARA's 44.9% and RIOT's 39.6%. This margin advantage provides more cash flow per dollar of revenue for reinvestment or return to shareholders.

CleanSpark's operational expertise shows in its fleet efficiency improvement from 18 J/TH to under 17 J/TH in nine months, while competitors struggle with older fleets above 20 J/TH. As CEO Matt Shultz noted, "I don't have to outrun the bear. I just have to outrun you," positioning CleanSpark to gain market share as less efficient miners capitulate during downturns.

AI/HPC: Speed and Power Access

In AI/HPC, CleanSpark's primary competitive advantage is speed to market and power acquisition capability. The company won its 285 MW Texas site by promising to start buying power in six months, not 18-24 months like traditional data center developers. This provides an edge because AI customers are demanding "rapid delivery" and hyperscalers are "canceling soft commitments" to co-location contracts.

The Submer partnership provides modular data center capabilities that reduce deployment time and cost by 10-15%. While established players have more experience, CleanSpark's ability to repurpose existing power infrastructure gives it a cost and timing edge. However, the company lacks the long-term customer relationships that incumbents enjoy, making tenant acquisition the critical success factor.

Valuation Context

Trading at $13.89 per share, CleanSpark presents a compelling valuation profile for a company with 102% revenue growth and positive net income. The P/E ratio of 12.4x is significantly below the software/infrastructure peer median, reflecting the market's reluctance to assign a premium multiple to a Bitcoin-exposed business. However, this multiple may undervalue the emerging AI/HPC business and the quality of the company's capital allocation.

The price-to-sales ratio of 4.85x compares favorably to pure-play Bitcoin miners (MARA 4.96x, RIOT 8.73x) and AI data center companies (CoreWeave trades at significantly higher multiples). The enterprise value to EBITDA ratio of 17.81x appears reasonable given the company's 40% net margin and 102% growth rate.

The balance sheet provides important valuation support. With book value of $7.65 per share and a market price of $13.89, the stock trades at 1.82x book value. However, CFO Gary Vecchiarelli argues that "the fair value of those assets and access to energy is far greater than that," suggesting the market may be undervaluing the power portfolio. The company's $400 million in undrawn credit capacity and $1.19 billion Bitcoin treasury provide substantial liquidity and strategic optionality.

Key valuation drivers going forward will be: (1) the pace of AI/HPC tenant signings and the revenue multiple the market assigns to this business, (2) Bitcoin mining margins and hash rate market share, and (3) the success of the DAM strategy in generating non-dilutive cash flow. If CleanSpark can demonstrate that 20-30% of revenue is coming from stable AI hosting contracts by 2026, the market may re-rate the stock toward data center multiples (8-12x sales) rather than Bitcoin miner multiples (4-6x sales).

Conclusion: The Infrastructure Optionality Premium

CleanSpark has engineered a unique investment proposition: a cash-flowing Bitcoin mining business that funds the development of a higher-margin AI infrastructure platform, all while returning capital to shareholders and avoiding dilution. The company's infrastructure-first approach creates valuable optionality—every megawatt can be allocated to its highest and best use, whether that's mining Bitcoin at 55% margins or hosting AI workloads at potentially higher returns.

The critical variables that will determine success are execution velocity on AI tenant acquisition and the durability of Bitcoin mining margins through the next halving cycle. If management can secure long-term contracts for its 535 MW of AI-ready capacity (250 MW at Sandersville + 285 MW in Texas) at $10 million per MW, this could generate $5.35 billion in revenue over contract terms—transforming CleanSpark from a Bitcoin miner into a diversified digital infrastructure platform.

The stock's current valuation appears to price in only the Bitcoin mining business, creating potential upside if the AI pivot succeeds. However, the execution risks are real, and the capital intensity of AI development could strain the balance sheet if tenant acquisition lags. For investors willing to bet on management's capital allocation discipline and operational expertise, CleanSpark offers a rare combination of growth, capital returns, and strategic optionality in the critical infrastructure layer of the digital economy.