'Power for AI data centres is still a great theme that investors should take a look at': Toner

Key Concepts

• AI Data Center Infrastructure: The physical facilities, power capacity, and cooling systems required to house high-performance computing (GPU) racks for AI workloads.
• Hyperscalers: Large-scale cloud providers (e.g., Google) that drive massive demand for data center capacity.
• EBITDA per Megawatt: A key performance metric for data center operators, representing the profitability generated by each unit of power capacity delivered.
• Physically Settled Contracts: Commodity futures contracts that require the actual delivery of the underlying asset (e.g., LNG or gold) rather than cash settlement, providing more accurate hedging.
• Natural Monopoly: A market structure where, due to network effects, one dominant player (like an exchange) becomes the standard, creating high barriers to entry and high margins.

1. Market Context: AI Growth and Data Center Demand

Martin Toner (ATB Capital Markets) addresses concerns regarding reports of slower-than-expected growth for OpenAI. He argues that while revenue growth naturally slows as companies scale, the underlying demand for power in AI data centers remains a robust investment theme. Despite recent market volatility and talk of a "data center bubble," Toner notes that hyperscaler capital expenditure (capex) plans are increasing, and deal terms for infrastructure providers are improving.

2. Terra Wolf (WLF): The Operating Model

Terra Wolf has successfully pivoted from Bitcoin mining to providing infrastructure for AI data centers.

• Business Model: They develop facilities near power sources (e.g., Niagara Falls), build the infrastructure to house GPU racks, and lease the space to customers.
• Revenue Structure: They earn rental revenue based on power delivered. The industry standard is approximately $1.5 million in revenue per megawatt, with high margins yielding roughly $1 million in EBITDA per megawatt.
• Valuation: With a 700-megawatt capacity, the company has the potential to generate $700 million in EBITDA. Trading at a 20x EV/EBITDA multiple, Toner argues that Terra Wolf is transitioning from an asset owner to an operating company, justifying a valuation similar to mature peers like Digital Realty, but with 3x–4x faster growth.
• Strategic Backing: Google is a significant stakeholder (10% ownership) and a partner through Fluid Stack.

3. Key Infrastructure (formerly Bitfarms)

Key Infrastructure is identified as a "fast follower" to Terra Wolf.

• Current Status: They have not yet signed their first customer but possess 500 megawatts of capacity.
• Valuation Gap: The stock currently trades at roughly $1 million per megawatt, compared to Terra Wolf’s $5 million per megawatt.
• Catalyst: Toner expects the signing of their first customer in late summer or fall. This event could potentially generate $500 million in EBITDA and $5 billion in value, though the company will likely require additional debt or equity financing to reach this goal.

4. Abaxx Technologies: Commodity Exchange Innovation

Abaxx Technologies represents a departure from the data center theme, focusing on a new, regulated exchange for physical commodities.

• Unique Value Proposition: It is the first exchange to receive regulatory approval in a decade. It offers physically settled contracts for LNG and gold.
• Problem Solved: Current market participants often use proxies like "Henry Hub" to hedge LNG, which introduces significant risk during volatility. Abaxx’s physically settled contracts provide a more accurate hedge.
• Investment Perspective: Toner compares Abaxx to a biotech company: it requires significant time and capital to develop, but once a contract gains market traction, it benefits from "natural monopoly" dynamics and network effects.
• Valuation: While the stock appears expensive on a price-to-sales basis, Toner emphasizes that successful exchanges command high multiples due to their high-margin, monopolistic nature.

Synthesis and Conclusion

The investment thesis presented by Martin Toner centers on two distinct pillars of innovation:

1. AI Infrastructure: Companies like Terra Wolf and Key Infrastructure are capitalizing on the massive, non-discretionary demand for power and physical space required by AI hyperscalers. The transition from Bitcoin mining to AI data center operations provides a scalable, high-margin business model that is currently being re-rated by the market.
2. Market Infrastructure: Abaxx Technologies represents a long-term play on market efficiency. By solving the hedging risks associated with physical commodities through a modern technology stack, the company aims to establish a dominant, high-margin exchange platform.

Main Takeaway: Investors should look past short-term volatility in AI-related headlines and focus on companies that provide the essential, physical "plumbing" for both the digital AI economy and the global commodities market.