Executive Summary / Key Takeaways

• TeraWulf is strategically pivoting from a pure Bitcoin mining focus to a vertically integrated digital infrastructure company, leveraging its energy expertise and zero-carbon power assets for high-performance computing (HPC) and AI hosting.
• The Lake Mariner facility, powered predominantly by zero-carbon energy, is the core asset, offering significant scalability (up to 750 MW) and a competitive advantage in securing high-value HPC customers seeking sustainable, low-cost power.
• Recent financial results reflect the transition, with Q1 2025 impacted by temporary power price spikes and increased HPC build costs without corresponding revenue, resulting in a net loss, but management anticipates improved profitability as HPC buildings come online.
• Key milestones include the successful buildout of initial HPC data halls (WULF Den, CB-1, CB-2) for anchor tenant Core42, expected to generate significant, predictable revenue starting in Q2 2025, and securing project financing to fund further expansion.
• While Bitcoin mining remains profitable under normal conditions, the long-term strategy prioritizes the higher-margin, stable revenue streams from HPC hosting, positioning TeraWulf for potentially superior shareholder value creation compared to pure-play miners.

The Energy Advantage: TeraWulf's Foundation in a Power-Hungry Digital World

In the rapidly evolving landscape of digital infrastructure, access to reliable, low-cost, and sustainable energy is no longer a luxury – it is the fundamental differentiator. TeraWulf Inc. (NASDAQ:WULF) has built its core strategy around this principle, positioning itself not merely as a Bitcoin miner, but as a vertically integrated owner and operator of next-generation digital infrastructure purpose-built for both Bitcoin mining and, increasingly, high-performance computing (HPC) workloads like AI and machine learning.

The company's journey, significantly shaped by strategic moves in recent years, underscores this pivot. Beginning with its operational launch of the Lake Mariner Facility in March 2022 and participation in the Nautilus Cryptomine joint venture (later divested in October 2024 for a 3.4x return), TeraWulf initially focused on leveraging its energy assets for Bitcoin mining. However, recognizing the burgeoning demand for compute-intensive applications and the strategic value of its predominantly zero-carbon power sources, the company initiated its WULF Compute strategy in 2024. This culminated in a landmark agreement with Core42 in December 2024, securing a long-term lease for over 70 megawatts (MW) of HPC infrastructure at Lake Mariner, signaling a clear path towards revenue diversification and higher-value applications.

At the heart of TeraWulf's investment thesis lies its differentiated infrastructure, particularly the Lake Mariner Facility in upstate New York. Situated on the site of a former coal plant, this facility benefits from direct access to the Zone A grid, characterized by low-cost, predominantly zero-carbon energy (over 90% from hydro and nuclear sources). This isn't just an environmental talking point; it translates into tangible, quantifiable benefits. While specific comparative figures against competitors' energy costs vary, management consistently highlights their ability to achieve lower power costs per kilowatt-hour compared to many peers, a critical factor in both profitable Bitcoin mining and competitive HPC hosting. The site also boasts scalable infrastructure, with 245 MW currently energized and the potential to expand up to 500 MW in the near term, and potentially 750 MW with targeted transmission upgrades, secured through a new long-term ground lease. This inherent scalability, coupled with access to abundant water for cooling (essential for high-density HPC), provides a significant structural advantage.

The company's energy infrastructure expertise, honed over decades by its management team, is a key technological differentiator. They understand the complexities of grid connections, power procurement (including participation in demand response programs which generated $2.8 million in Q1 2025), and site development in energy-constrained environments. This allows them to identify and develop sites like the prospective Cayuga facility, which share similar energy advantages, positioning TeraWulf to expand its footprint strategically.

Competitive Dynamics in a Converging Market

The digital infrastructure market is intensely competitive, with players vying for dominance in both Bitcoin mining and the rapidly growing HPC sector. TeraWulf competes directly with other large-scale Bitcoin miners like Marathon Digital (MARA), Riot Platforms (RIOT), Hut 8 Mining (HUT), and Core Scientific (CORZ). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, TeraWulf holds an estimated 2-4% aggregate market share in Bitcoin mining hashrate.

Compared to its peers, TeraWulf's primary competitive advantages stem from its energy strategy:

• Cost Efficiency: Access to low-cost, zero-carbon power provides a significant operational cost advantage, particularly in Bitcoin mining. While Q1 2025 saw an anomalous spike in power costs ($66,084 per bitcoin mined for energy), management guides for a return to significantly lower costs (~$47,500 per bitcoin for Q2-Q4 2025), underscoring the underlying cost structure advantage compared to competitors facing higher or more volatile energy inputs.
• Sustainability: The predominantly zero-carbon energy source is increasingly attractive to environmentally conscious enterprises and investors, potentially commanding a premium or securing contracts where less sustainable options are excluded. This positions TeraWulf favorably against miners heavily reliant on fossil fuels.
• Vertical Integration & Infrastructure: Owning and operating its infrastructure provides greater control over costs, efficiency, and buildout timelines compared to relying on third-party hosting. The ability to rapidly deploy customized data center solutions is a key selling point for HPC customers.

However, TeraWulf also faces competitive challenges:

• Scale: While growing rapidly, TeraWulf's current operational hashrate (12.2 EH/s exiting Q1 2025) is still smaller than some larger competitors like MARA or RIOT, which benefit from economies of scale in miner procurement and operations.
• Market Penetration (HPC): As a newer entrant to the large-scale HPC hosting market, TeraWulf is still building its track record compared to established players like Core Scientific or even hyperscalers like AWS (AMZN) (an indirect competitor). Energizing the Core42 buildings is seen by management as crucial to demonstrating execution capability and attracting further tenants.
• Execution Risk: Rapid expansion into a new, complex area like high-density liquid-cooled HPC infrastructure carries inherent execution risk, including potential delays or cost overruns, although management expresses confidence in their team and partners.

Indirect competition comes from large cloud providers and emerging AI firms. While these offer compute, TeraWulf's model focuses on providing dedicated, high-density infrastructure and power, often for customers who prefer not to build their own or require specific configurations not readily available from hyperscalers. The increasing demand for compute across various industries, including enterprise, is a significant tailwind.

Performance and the Pivot in Motion

TeraWulf's recent financial performance reflects both the inherent volatility of the Bitcoin mining market and the significant investment phase of its strategic pivot to HPC.

For the three months ended March 31, 2025, revenue from mining was $34.4 million, a decrease from $41.6 million in the prior year period. This decline was primarily driven by a reduction in Bitcoin mined (372 vs. 767 in Q1 2024), impacted by the April 2024 halving and increased network hashrate, partially offset by a higher average Bitcoin price. Cost of revenue (exclusive of depreciation) increased to $24.6 million from $14.4 million, largely due to higher realized power prices, including a temporary, historically anomalous spike in Q1 2025.

Operating expenses (including related party) increased to $2.9 million from $1.7 million, reflecting higher rent and increased staffing for the expanding Lake Mariner facility and HPC initiatives. Selling, general, and administrative expenses saw a substantial increase to $50.1 million from $14.9 million, primarily driven by a $31.7 million increase in stock-based compensation, along with higher employee costs and professional fees. Depreciation also increased slightly to $15.6 million, reflecting assets placed in service.

The net result was a significant net loss of $61.4 million for Q1 2025, compared to a net loss of $9.6 million in Q1 2024. This quarter's results highlight the financial burden of carrying incremental costs associated with the HPC buildout without yet generating revenue from these assets. Non-GAAP Adjusted EBITDA for Q1 2025 was negative $4.7 million, down from positive $32.0 million in Q1 2024, further illustrating the impact of challenging market conditions and the investment phase.

However, management emphasizes that these results are not indicative of the expected future performance as the HPC assets come online. The Q1 2025 BTC segment cost of production was approximately $72,000, but this is anticipated to decrease significantly to approximately $47,500 for Q2-Q4 2025 as power prices normalize and fleet efficiency improves.

Financially, TeraWulf has taken significant steps to enhance its position. As of March 31, 2025, the company held $218.2 million in cash and cash equivalents. Cash provided by operating activities in Q1 2025 was $56.5 million, significantly boosted by the $90.0 million in Prepaid Rent from the HPC customer. Cash used in investing activities was $61.1 million, primarily for the Lake Mariner buildout. Cash used in financing activities was $51.3 million, including $33.3 million for share repurchases under the $200 million program and $18.0 million for tax withholdings on stock awards.

The company's balance sheet reflects total assets of $841.2 million and total liabilities of $670.8 million, with total stockholders' equity of $170.4 million. The $500 million Convertible Senior Notes due 2030 provide significant long-term, low-cost capital. Management views having both an active share repurchase program and an ATM facility as prudent tools given market volatility.

Outlook and Strategic Trajectory

TeraWulf's outlook is firmly centered on the successful execution of its HPC strategy and the continued optimization of its energy assets. Management's key near-term priorities are clear:

1. Optimize the self-mining platform following the energization of Miner Building 5.
2. Deliver all three Core42 buildings (WULF Den, CB-1, CB-2) on time and on budget throughout 2025. The WULF Den is operational and expected to generate revenue in Q2 2025, CB-1 in Q3, and CB-2 in Q4.
3. Lease additional HPC hosting capacity at Lake Mariner.
4. Close project financing for the 72.5 MW Core42 buildout, expected mid-2025, targeting approximately $300 million in debt.

The Core42 contract for 72.5 MW is expected to generate over $1 billion in cumulative revenue over its initial 10-year term, representing approximately $100 million in annual revenue. Management estimates that every incremental 50 MW of capacity contracted at similar economics could be worth an additional $1.30 per fully diluted share. They aim to contract and deploy 100 to 150 MW of HPC hosting capacity annually over the next three years.

This strategic shift is expected to diversify revenue, improve profitability margins (targeting ~75% EBITDA margin on initial HPC capacity, higher on incremental), and provide more predictable cash flows compared to pure Bitcoin mining. The increased capital expenditures on the Core42 buildout ($430 million total) are viewed as an investment in a high-quality, replicable design that enhances year one EBITDA and positions the company for future expansion within its target CapEx range of $6 million to $8 million per critical MW, which is competitive within the industry.

Beyond Lake Mariner, the company is actively pursuing expansion opportunities, prioritizing the Cayuga site (a sister facility in New York with similar energy advantages) and evaluating additional sites with strong time-to-power potential and on-site generation capabilities, leveraging their energy infrastructure expertise. The integration of Beowulf Electricity & Data is also being pursued to streamline operations and align incentives.

Risks and Considerations

Despite the compelling strategic vision, investors should be mindful of potential risks.

• Execution Risk: Successfully building and bringing complex, high-density HPC data centers online on time and within budget is challenging. Delays or cost overruns could impact the timeline for revenue generation and project financing.
• Market Demand for HPC: While demand appears strong, particularly from enterprises, securing additional tenants beyond Core42 at favorable terms is crucial for realizing the full potential of the Lake Mariner expansion capacity and future sites.
• Bitcoin Market Volatility: Although diversifying, TeraWulf remains exposed to fluctuations in Bitcoin price and network difficulty, which can impact the profitability of its mining operations and overall financial results, as seen in Q1 2025.
• Power Price Volatility: While Lake Mariner benefits from low-cost, zero-carbon power, realized prices can still fluctuate, as demonstrated by the Q1 2025 spike. While management views such spikes as infrequent, they can temporarily impact profitability.
• Financing Risk: While confident in securing project financing for the Core42 buildout, successful execution is necessary to free up capital for further expansion. Future growth plans may require additional capital raises, which could be subject to market conditions and potentially dilute existing shareholders.
• Technological Obsolescence: Both Bitcoin miners and HPC hardware evolve rapidly. The need for continuous fleet upgrades and data center design refinements requires ongoing capital investment and carries the risk that current infrastructure or equipment could become less competitive over time.

Conclusion

TeraWulf is undergoing a significant transformation, strategically leveraging its core energy infrastructure expertise and unique zero-carbon power assets to evolve beyond Bitcoin mining into the high-growth HPC and AI hosting market. While the first quarter of 2025 reflected the financial impact of this transition phase, marked by investment costs and market headwinds without corresponding new revenue, the path forward is defined by clear strategic priorities and anticipated milestones.

The successful buildout and energization of the initial HPC data halls for Core42 throughout 2025 represent a critical inflection point, expected to unlock significant, stable revenue streams and validate TeraWulf's capabilities as a next-generation digital infrastructure provider. Combined with a focus on maintaining efficient Bitcoin mining operations, securing project financing, and pursuing additional energy-advantaged sites, TeraWulf is positioning itself to capitalize on the convergence of energy and compute. The investment thesis hinges on the company's ability to execute on its HPC buildout and customer acquisition strategy, translating its structural energy advantages into superior, long-term profitability and shareholder value in a market increasingly defined by the demand for sustainable, high-density compute. Investors should closely monitor the progress of the Core42 deployment and subsequent customer announcements as key indicators of the company's success in realizing this strategic vision.