CleanSpark CEO discusses company's pivot from pure-play bitcoin mining to AI

Key Concepts

• AI Compute: The processing power and infrastructure required to run artificial intelligence applications.
• Bitcoin Mining: The process of validating transactions and adding them to the Bitcoin blockchain, rewarded with newly minted Bitcoin.
• Interruptible Load: An energy consumer that can be temporarily shut down or reduced when there is high demand on the power grid.
• Hyperscalers: Large cloud computing providers that operate massive data centers.
• Capex (Capital Expenditures): Funds used by a company to acquire, upgrade, and maintain physical assets like property, buildings, and equipment.
• Gross Margin: The difference between revenue and the cost of goods sold, expressed as a percentage.
• Capital Stewardship: Prudent management of a company's financial resources.
• Revolving Line of Credit: A flexible loan that allows a borrower to draw down and repay funds repeatedly up to a certain limit.
• Convertible Debenture: A type of bond that can be converted into shares of common stock.
• Uptime: The percentage of time a system or service is operational and available.
• Terrahash: A unit of computing power used in Bitcoin mining, representing one trillion hashes per second.
• Fourth Industrial Revolution: A term referring to the current era of technological advancement characterized by the fusion of physical, digital, and biological spheres.

CleanSpark's Strategic Pivot to AI Compute

Rationale for Diversification

CleanSpark is transitioning from a pure-play Bitcoin mining company to a hybrid model that includes AI compute services. This strategic shift is driven by the unique positioning of Bitcoin miners in their ability to rapidly build and energize data centers. The company observes a significant demand for AI capacity, with hyperscalers reportedly spending 60% of their free cash flow on capex to meet this demand. A primary constraint in this rush for AI capacity is access to power. CleanSpark, with its origins as an energy company and its subsequent growth into North America's largest Bitcoin miner, possesses a core competency in accessing energy and land rapidly and deploying infrastructure. This dual-track strategy aims to maximize the value of its Bitcoin mining operations while leveraging its existing land and power access to provide AI data center services, which is deemed the most appealing approach for shareholders.

Managing Power Costs and Demand

The company addresses the increasing cost and demand for power by integrating Bitcoin mining with AI data centers. Bitcoin mining is characterized as a unique, interruptible load. This means CleanSpark can curtail its mining operations when the utility grid experiences increased demand, thereby providing flexibility that utilities require. For instance, a utility principal in Georgia indicated that just 100 hours per year of added grid flexibility could resolve most rolling brownouts and blackouts.

In contrast, AI data centers typically require 99.999% uptime. By blending these two operations, CleanSpark can offer the much-needed interruptibility and flexibility to utilities, while the stable demand from AI data centers provides a consistent base load.

Real-world Application Example: During Hurricane Helen in southern Georgia, CleanSpark's 86-megawatt data center in Washington, a town with a previous 7-megawatt load, was able to curtail its operations and send power back to the grid. This action restored power to the local hospital within an hour while community infrastructure was being repaired, demonstrating the critical role Bitcoin mining can play as a partner to utilities.

Continued Importance of Bitcoin Mining

Bitcoin mining is set to remain a significant component of CleanSpark's business, providing the essential flexibility for its power strategy. The company highlights its strong performance in Bitcoin mining:

• Highest uptime among industrial miners.
• Most efficient fleet of mining equipment.
• A treasury of over 13,000 Bitcoin, mined internally, valued at approximately $1.5 billion, with a gross margin exceeding 54%.

CleanSpark leverages its mined Bitcoin as collateral for a Bitcoin-backed revolving line of credit. This approach avoids continuous dilution through stock offerings or convertible debentures. The company can tap into this credit line to fund infrastructure development and operational expenditures, then use its cash flows to retire the debt. This strategy has resulted in a "phenomenally strong balance sheet" and demonstrates the company's commitment to capital stewardship at an industrial scale.

Expansion Roadmap and AI Initiative

CleanSpark's roadmap for its AI initiative involves expanding its land and power portfolio.

• Current Operations: 1.03 gigawatts (GW) of energized substations.
• Pipeline Capacity: An additional 1.7 GW.

The plan is to utilize Bitcoin mining to rapidly build out and scale this infrastructure. Subsequently, established data centers in strategic locations can be converted to high-performance compute and AI facilities. An example of this strategy is their 100-megawatt (MW) facility in the greater Atlanta area, a key AI compute hub in North America, second only to Northern Virginia.

The Trend of Diversification in Crypto Mining

The pivot to AI compute is presented as a prevailing trend for crypto miners. Companies that adopted AI early often had less efficient Bitcoin mining infrastructure, making repurposing those assets logical. CleanSpark differentiates itself due to its consistent 98%+ uptime and highly efficient fleet.

Efficiency Metrics:

• A year and a half ago, Bitcoin mining machines consumed approximately 30 watts per terahash.
• CleanSpark's current fleet consumes about half that amount, effectively doubling their Bitcoin mining output for the same power consumption.

This efficiency allows CleanSpark to maintain 50%+ gross margins in its Bitcoin mining operations, generating capital and flexibility that utilities value.

Case Study: Cheyenne, Wyoming Expansion CleanSpark secured 100 MW capacity in Cheyenne, Wyoming. Microsoft was also a bidder. CleanSpark was chosen not due to a stronger balance sheet than Microsoft, but because they could deploy a 100 MW Bitcoin mining facility in approximately 6 months. In contrast, building a dedicated AI data center can take 3 to 6 years. This rapid deployment allows CleanSpark to monetize megawatts, which can then be used to build a proper data center and repurpose it for higher shareholder value.

Perspective on the AI Growth Cycle

CleanSpark believes the AI growth phase is still in its very early stages. The company points to the ramp-up of large language model training and the subsequent need for inference and edge compute. They view AI as the "fourth industrial revolution." The primary bottlenecks are identified not as chips or data center infrastructure, but as land and power. This is why Bitcoin miners, with their existing access to these resources, are well-positioned to provide AI services.

While being a first mover has advantages, CleanSpark, having been the "last of the majors" in Bitcoin mining and now the largest and most efficient in the country, sees a similar opportunity in AI. This allows them to "cherry-pick" counterparties, strategic partnerships, and decide which megawatts are best repurposed for high-performance compute, optimizing value for shareholders.