Bernstein: Texas data center approval outlook weakens, potentially making approved power scarcer

Why did the Texas election change project expectations?

Bernstein says that after Democratic candidate Gina Hinojosa defeated incumbent Governor Greg Abbott, it expects the data center moratorium to continue and related legislation may remain deadlocked; the market had previously expected the moratorium to be lifted after the election subject to audit conditions being met.
Texas accounts for approximately 25% of data center construction activity; more than half of the approved and reserve power portfolios of the miner-turned-developers covered by the firm is concentrated in Texas. Projects reliant on future grid connection approvals consequently face greater uncertainty.
The new governor's proposed directions include requiring data centers to bear power and water costs and create jobs for communities. Bernstein believes that if the supply of new connections is constrained, approved projects meeting state requirements could command a scarcity premium; the companies it covers collectively have approximately 6.5 gigawatts of approved capacity in Texas.

RIOT's Rockdale and Corsicana sites in Texas have utility approval for 700 megawatts and 1 gigawatt, respectively. Rockdale has already contracted 241 IT megawatts for AI deployment; Corsicana is at the stage of a nonbinding letter of intent with a single tenant.
CIFR has already leased 700 megawatts across three sites in Texas and is actively marketing another 477 megawatts at sites with grid approval; the 1 gigawatt at its Colchis site has received only a conditional baseload classification, with energization targeted for 2028.
WULF has no active development sites in Texas; its 3.6 gigawatts of total power capacity are spread across Kentucky, Maryland and New York. Of that, 1 gigawatt corresponds to active AI contracts, with another 2.6 gigawatts in long-term reserves.

AI data centers typically use project financing to cover 60% to 90% of construction capital expenditure, backed by leases of 10 to 20 years. Bernstein believes that when financing markets freeze, projects with funding secured are relatively protected, while new projects or uncontracted capacity may be delayed and incur higher interest costs.
The firm says CIFR and CLSK have projects with funding secured; financing has yet to be announced for some WULF, CORZ and RIOT projects, but existing liquidity can support near-term construction. IREN's capital expenditure guidance for the fiscal year 2027 ending in June is 25 billion to 30 billion dollars, of which existing cash, committed GPU financing and prepayments cover 14 billion dollars.
Cloud computing operators have greater funding needs: data center hosting construction costs approximately 10 million to 14 million dollars per IT megawatt, while equipment such as GPUs requires an additional 25 million to 35 million dollars. Integrated operators that build both themselves must carry both investments on their balance sheets.
The long-term risk is refinancing: Bernstein estimates that hosting projects often need approximately 7 to 10 years to repay principal using cash flow after interest, while debt maturities are typically around 5 years; if financing markets remain cautious, refinancing at maturity will be a key risk.

Citing uncertainty over Texas approvals and rising financing costs, Bernstein lowered price targets for the companies it covers and standardized AI hosting valuations at an enterprise value multiple of 12 times projected 2030 EBITDA, discounted back to the target valuation year.
For WULF, the firm raised its 2030 high-performance computing net revenue forecast from 1.7 billion dollars to 2.5 billion dollars, but lowered the valuation multiple from 21 times to 12 times and the price target from 36 dollars to 20 dollars. CIFR's Barber Lake project also shows construction cost pressure: after amending its lease, the company raised its capital expenditure guidance from 9 million to 11 million dollars per IT megawatt to 13 million to 14 million dollars.
Bernstein maintains its outperform ratings on IREN, CIFR, WULF, CORZ, CLSK and RIOT. For CIFR, WULF and CORZ, the firm calculates that current adjusted enterprise value is at a median discount of 22% to the value implied by contracted net operating income at capitalization rates of 8% to 9%; the calculation also includes the additional debt WULF and CORZ need to complete contracted capacity.