Cipher Digital: ex-Bitcoin miner building 4.2 gigawatts of AI data centers in West Texas with hyperscaler leases and high-yield debt

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Let me tell you about console.com. The console builds AI agents that automates 70% of IT, HR, and finance support, giving employees instant resolution for access requests and password resets. Our next guest is Tyler Paige here with us in the TBP room live. Thank you so much for taking the time to come on down and chat with us.

Of course.

Welcome to the show. Uh please uh why don't you kick it off with a little introduction on yourself for everyone who's watching.

Sure. I mean, look, longtime listener, first- time guest, so thanks for having me. Excited to be in studio for that. Um yeah, look, I'm the founder and CEO of Cipher Digital. We're a developer of AI data centers. Popular trend these days. Um over the last year, we've really completely transformed our business. Once upon a time, we were a Bitcoin miner.

Yeah.

Uh also a data center building business. Actually, a lot closer to building AI data centers than I think the is in the popular imagination.

Um but we've really had just a complete transformation over the last 12 months. Uh we've signed a series of leases with hyperscalers or with companies affiliated and backed by hyperscalers. We're currently building 700 megawatts of uh AI data centers uh at three sites in West Texas.

Mhm.

There we go.

Love that.

That's huge.

That was uh boname. That was awesome. Um

yeah, so look, we're really busy with that and then we have a massive development portfolio beyond that. So we've at this point sort of proven that uh we can sign these leases, we can construct these data centers, we can finance them also a really big part of it. Uh and then we have a really big development portfolio. So

the total portfolio at Cipher is 4.2 gawatt.

Wow.

Um and

he's going back.

It's even louder. It's even louder in person.

Yeah. That's just really awesome. Um, yeah. So, I mean, look, we're on the path to sort of rinse and repeat on that business.

Um, demand remains really high. Uh, of course, everyone in in non-podcast media will point out

everything's a bubble or there's challenges or whatever and, you know, we can run through those things, but, um, you know, right now, listen, the demand remains really high.

Uh, I don't see any signs of that pulling back if you've got power available in the next couple years. Uh, and it's a really exciting business. I mean, honestly, with all the things going on in the space, Cipher lives in a little bit of um, you know, it's got a unique structure that we're really doing collocation. So, building like a full turnkey AI data center for a multi-deade lease and handing over the keys. And

on a spreadsheet, truthfully, it's it's a pretty simple business. If you can execute in the real world, it's real estate development.

It's a real estate deal.

It really is. and and there are so many interesting things going on in the space and there's lots of people trying to be more vertical up the stack and build a software layer and that's all super cool and there are big prizes to win there probably but I love our simple rinse and

you're in the worm shell business.

How are you how are you thinking about site selection across the development portfolio and new opportunities? We had the the New York state uh data center moratorum get announced this morning. I would expect other states to follow suit. Uh you guys don't want to invest, you know, tons of time and resources into a into a into a state that could eventually say like, "Hey, you just got to stop what you're doing."

Yeah. I mean, listen, so uh I'm actually based our corporate headquarters is in Midtown Manhattan.

None of our data centers are anywhere in the state of New York. Um, I think that's a little bit of a a hangover from our days starting as a Bitcoin miner when not only did people not want to give you the power in New York, but they also decided they didn't like Bitcoin.

Oh, interesting.

Um, so uh

and I think the biggest data center in New York right now is still a Bitcoin miner or they were and they've been pivoting.

I think it's pivoting over. I think it's one of our our good friends and rivals. But um you know look I I think there are going to be layers of challenges from the federal level to the state level to the local level anywhere in the country. Um of our 10 sites nine are in Texas and one is in Ohio.

Um Texas is generally known as a very kind of low regulation businessfriendly state.

Um very entrepreneur friendly. That said, the exact same concerns about data centers exist there. And we spend a lot of our time uh trying to to be good neighbors and good partners and deliver the message of how it's going to be a wonderful addition to the community when we come join.

But quite understandably, people show up. I mean, it is outside of the universe of the savvy listeners to your podcast.

Yeah.

There's a lot of like naked dislike of data centers.

Yeah. You see it in the polling data, too. But, you know, it's interesting. Even as recently as yesterday, we had folks down at a local hearing and um

I I completely understand why people show up and they're not happy because they're like, "I've heard this stuff's terrible and it's going to end the world and you know, um you know, it's going to end things that are creative and everything's going to be an automated chatbot and like I don't like anything about that."

Um and then you get all the way to the spectrum of frankly just people don't know what happens in the building. So you get questions like is this going to harm my cows that are next door or like is I mean someone asked like is my pacemaker going to have a problem because of the building and it's it's not for the record. Um but you know

yeah there's no there's no upside no immediate upside to them often and then there's potential downside like noise and energy prices and things like that. uh what have you thought about certain proposals or ideas around doing direct payments to people, you know, in towns or counties that are going to have a data center developed and they're thinking, well, I don't what's a benefit to me other than some construction jobs and a handful of jobs and local tax revenue, but it's not as like direct as like, you know, cash coming into your account.

So, that that may be where it goes, Jordy. I mean, I I think there's this needs to be answered on a couple levels. There's like a really really high up public policy question about do we have the right tax regimes and ownership regimes and large language models and government ownership and things like that. And that's what I mean like it goes through all the layers down to the state.

I think what I'd start with is just number one back to the big point about this scary new neighbor you might have. I mean, I try to focus very much on starting with what happens in these buildings.

And, you know, I'd say, look, we're we're a pretty entrepreneurial driven culture at Cipher, but some people, especially a lot of younger people, a little bit more missiondriven. And I point out like you guys are racing on this construction project, and that literally might be the building that has the breakthrough in research to cure cancer or dementia or something like that. Or we've got, you know, one in every five employees at our firm is a veteran. And I point out like

we may have work that goes on in there that saves our soldiers lives. So part of it is like just starting there. To get to your actual question though about like money sharing, I'd point out um there's already a fair amount of framework in place that envisions this. Not exactly the giant AI buildout that's happening, but like for example in Texas, we will pay tens of millions of dollars a year to the Texas public school system.

Yeah. Yeah. We are the largest taxpayer in the counties typically of our data centers. Um and then we try to go above and beyond that to do a fair amount of community outreach. So uh in one of our locations we're refurbishing the small hospital there. We're buying them a new fire truck.

Uh we're rebuilding the playgrounds and the pools. Little things like that having

Virginia has an example of of a state that benefited from tax revenue as the AWS campus built out there. And a lot of local uh people that live there have lived through the data center boom and seen, you know, lower taxes on their balance sheets because of that.

Yeah. I mean, listen, affordability is a really big political topic right now. And so people say, well, wow, my electricity bills a lot higher.

Must be the data centers and it's sort of like, well,

we printed an awful lot of dollars starting five years ago and we've had a couple wars and there's a lot of inflation and so it's not really the data center. But I mean, I think look, we try to be very front-footed on that. We do not want to raise local rateayers bills. By the way, all the regulators in Texas feel the same way. So, like that problem will get addressed. Yeah.

I really think it's the big picture thing of like

this is something you should want in your community.

Sure.

Um, you know, it's a big warehouse that's air conditioned and full of computers.

Yeah.

It's not, you know what I mean? And where we're building them and it's it's really it's interesting. It's we've gotten to be a bit of a disruptor to the traditional data centers like in Northern Virginia.

Sure.

When we started our pivot, we almost had an unfair advantage from being a Bitcoin miner because when you're a Bitcoin miner, the business doesn't work on the spreadsheet unless your power costs are really low.

Yeah.

And where are they really low? In really remote places with a lot of generation. Yep.

And typically not a lot of demand, like not a lot of houses. So if you look at just the map of Texas, most of the people live in the east. There is a ton of generation in the west. You can't ship the electricity that far and so it's really cheap historically in West Texas.

When we started having this idea of like, wow, look how fast, you know, chat GBT is taking off and look at all the implications for how many megawatts you're going to need at a data center, we said, well, surely they're going to have to draw the conclusion that everyone's going to have to move to places like West Texas. And the entire incumbent data center industry was like no hyperscaler will ever sign a lease at those locations.

This is as recent as like a year and a half year ago.

And the floodgates it was a hassle and they they'd want to just co you know locate around there.

I think they were just using pattern recognition where they're like I've been in this business 20 years and no one's ever signed a lease out there. Huh.

And I think and then there was a second question about like, well, is latency really bad out to West Texas cuz it's a long way away from the city? But the truth is there's a big fiber line running out there and it's fast enough.

Yeah.

Um, you might not do traditional cloud work out there.

But even Northern Virginia exists because everyone went there 20 years ago and then built out all that infrastructure.

Yeah.

I can tell you because we're the tip of the spear, like all these guys are coming to West Texas. our portfolio alone is almost as big as all of Northern Virginia.

So, uh I mean I I just I think this is kind of the next thing that's gonna happen when people the the sort of next skeptical thing about locations like ours is well, we're at this really funny time where there's no power available and so there's a ton of demand and so people will go to these places but that's going to be like a dinosaur relic at the end of this lease in 15 years. Um, and we we we are 180 degrees opposite of that.

I actually think the cap rates will be lower. That will be a more valuable like terminal value for a data center at the end of a lease in West Texas because of what's of what West Texas will become.

I think over the next decade or two,

it feels like when uh new data centers come to town, there's like a suite of questions that local residents have. uh everything from aesthetics uh to power rates to water usage to sound to air quality. What of those five have, you know, solid regulatory frameworks in place where you can go and say, "Okay, we did the EPA test and we passed and so we're good." And which ones are more subjective?

So, it it really depends, which is an unsatisfactory answer, but I think we always start on the power side. Okay. Um and so if you look at at Urkott and the way they interconnect large sites,

that's generally a low regulation zip code um state.

Uh and so what I'd say is you need to address all those issues. There are some local permitting requirements around them, but I'd say it's more about the like what issues could be raised. There's no real framework of we'll just hold up the uh the noise permit. Sure,

because there's a lot of oil and gas in like industrial things in the places we're building. But I would say probably in our experience the

of course people care a lot about affordability. So we need to discuss that. But I think water at our locations tends to be um

the biggest issue. Um you know they they say I think whiskey is for drinking and water's for fighting in some of the places uh out there. Uh just it's it's dry. But what's interesting is, and I know you guys have talked data centers a lot on here before, but you know, with modern closed loop systems,

yeah, it's much less

really don't use that much water. And I think the other thing is you can innovate. So there's actually a lot of like

brackish nonpotable water underneath the dirt in Texas. And so you can build facilities to filter it and use it

and actually help the aquafer. So,

you know, I I generally think all these kind of growth issues are challenges, but they're all solvable.

Yeah. It feels like a meet in the middle here is instead of jumping straight to like data center ban, you're focused more on what is the decibel level that is acceptable in this city for any building, right? What is the power consumption for any building? What what what is the impact on the water supply for any building? And then that framework. So then if somebody shows up and they're just like, "Yeah, I have a house where I'm going to be blaring music." It's like, "Yeah, that can't happen in this neighborhood either because we've determined this." And and then that's applied broadly as opposed to just narrowly targeting this.

Well, what I'd also point out is like all of those same objections could be raised about almost any industrial build. Yeah, for sure. So, of course, I mean, if you go to the places where we build our data centers, we own hundreds of acres and in some places you can see to the horizon in all directions. So, I'm really not too worried about,

you know, we'll be cognizant of measuring the decibel level at the edge of our property, but like I'm not worried about anyone hearing it.

Sure.

Um

I, you know, I think it's it is going to vary by jurisdiction. If you try to plop one down in a in a neighborhood or something, that's not what we're trying to do. It seems like a lot of them have sort of like grown over time where there was it was it made a lot of sense to colllocate some data center for delivering Netflix to a local neighborhood and then the the the place just got upgraded and upgraded and upgraded until it's like running diesel generators 247 and then people are annoyed.

Yeah. I mean

having it creep up on you is is more of a problem than like the new project coming in with a dedicated

I think this is like any industrial build though where you've just got to balance you've got to strike the right balance. gets back to what you said like maybe the end policy solution is a different way of taxing regulating sharing the the income whatever

and we will certainly be

it's not necessarily it's not even necessarily like more dollars

that are being shared but it's like how you share the dollars because again like money going to someone's you know city feels a lot different than money going directly into someone's pocket right that they can use to pay their bills. So,

walk me through your capital market strategy when you're working on a new site, new project. Uh, what does your road show look like? We're familiar with like a series A pitch, series B pitch, even an IPO occasionally, but you're talking to private credit, are you talking to real estate investors, banks, debt? Walk me through the whole picture of like who you're calling, who who you're pitching, who's around the table, just in broad strokes.

Sure. So I mean high level we're the sites we're developing and and again this is some of the most lucrative real estate development in the history of real estate development. We have purchased these sites typically really cheap.

Yeah.

Like couple million bucks

for 100 acres

for the the land is almost secondary. It's getting the interconnect for power. So

okay

the price has gone up like per megawatt. But for example, we're building a 300 megawatt site right now for a um

for uh AWS uh and we paid like $7 million for the site three or four years ago. I mean it's been a while

to today that would be hundreds of millions of dollars to sell it

and we own lots of acreage around that. Um, so, uh, the back to your question about the model. So, typically we will try to find a good deal. Harder to find these days, but we have a pretty big portfolio. Like I mentioned, it's closing in on the size of Northern Virginia. So, it's pretty big to still be developed.

Um, next phase is we want to shorten the development timeline as much as we can and that typically will be an early equity investment. So, the longest lead time item to build one of these things typically is the um the like high voltage to mid voltage conversion infrastructure, the substation. Okay.

Okay. And that might be like 18 months to get one and call it

$100,000 a megawatt. So

300 megawatts, 30 million bucks.

Okay.

We'll get that done and we'll do some early civil work to get the site like the timeline to build shortened.

Okay,

that's currently at least, you know, who knows if we evolve over time, but currently at least that's where we stop generally our equity investment until we find a tenant that's interested.

That's very hard. takes forever. You negotiate for months and months, hundreds of pages of documents. Um, but if you get, let's say, a hyperscaler long-term lease,

at that point, they will be very opinionated about the particulars that they want for that site. That's a very iterative process with our engineering team. You figure out exactly this is the style they want. It ticks all these boxes. Um, at that point, if we have a signed lease, we will try to debt finance as much as possible. Um

and are you buying the actual GPUs or is the hyperscaler to this point that business has been less interesting to us now it's not very interesting but the the business returns the the piece we see the best certainly riskadjusted return and for the last year or two frankly just the best absolute return uh is building everything down to the GPU basically.

So wait so yeah walk me through exactly how far you're taking it. The building goes up. Yep.

The polished floors are in.

Yep. We're bringing Yeah. We're bringing cooling everything down to the rack.

To the rack. Okay.

They're going to bring in the rack racks. Got it. Okay.

Yeah. Connect the various connections. Uh and then

the water lines, power lines,

all of that. Chillers, everything down to the rack.

Yeah. It's a very like everything ready to go. And the reason why, by the way, on a long-term lease,

right, figure they're going to recycle those racks. Yeah.

Probably twice.

Sure.

Yeah. So like a lot of the modern design and iteration is how do we build this site to make it as easy as possible to not be outdated when we want to change the racks and the racks are going to be like there's going to be way more rack density I don't know they might replace them in five six years with one megawatt racks you know you might be at 120 kilowatts or something now and it's going to be way more dense and so you know high level you you have to bring basically you know electricity and water and air into the building. Y

um you have a very big open building um kind of like a lot of these types of fantastic.

Um and then the ability to dial down those um various valves and so forth as you get towards the rack. Yeah.

And probably the floor space shrinks over time and you have cool ping pong. You open the podcast studio in the other end of the at the other end of the data center in a few years to finish. Sorry, just because I didn't finish it like so then we'll go debt finance it. We have gone to the um the high yield markets.

Uh we've raised a couple billion dollars at about 6% in change. So amazing at a really high LTC. So um you know the market's wide open for that. Um, does your team look like a private equity fund with a bunch of people sitting at desks in front of spreadsheets and then you call people to actually go and build the building and they're off your staff and you're hiring construction firms or do you have sort of, you know, guys who can work a shovel.

I think it's a really weird company. Like I tell people, so I started the company in my attic during COVID. So we have had to hire like every person knew how to do something better than me at some point and then that's cascaded down. We only have about a hundred employees at this point.

Um it's a very um unique firm in that it's it's a little bit like a ven diagram of yes a finance sort of structuring spreadsheet person

project management that type of stuff.

Um let's call it a technology firm to figure out uh a lot of what needs to be done like networking and stuff like that. It's not exactly the industrial side of construction. And then the last part really and like the most populated part is the more industrial piece. We do in-house project management and most of the procurement activities. We externalize the like trade work.

Sure.

So if there's um

so you might pick the transformer to buy, schedule it for shipment, but you're calling a trucking company to bring it out. You're calling other people to unpack it off the truck, plant it, bolt it to the ground, do whatever else they need to We have an external EPC that really brings all those trades to the site. We have 1,800 EPC stand for

EPC. Oh, EPC.

Yeah, sorry. Engineering, procurement, construction. Right. So, sorry jargon on you. Um,

yeah. So, so um if there's 1,800 people on the site, maybe five of them are cipher employees.

Yeah.

The others are like the staffed up folks from the outsourced provider of a lot of that trade work.

Do you like railroad analogies? Actually, it's the best analogy.

More than oil.

Yes. And I'll tell you why. Because it's this the buildout of this industry is so tied to capital markets. It's one of the reasons why we have such a New York nexus.

Sure.

Like honestly, even in Bitcoin mining, that was a big part. We went public as a way to raise a bunch of money in a business that's hard to like get the capex for.

Um all the hyperscalers are now doing the like varsity version of that with big debt offerings and so forth. But um I like the railroad analogy because the modern capital markets were kind of created because of the railroads. Like there wasn't enough bank lending in the world.

Yeah.

To get them built. So the idea of like buying equity shares in a project

is kind of the railroads. So that's why I like that one. None of them are exactly perfect, but that's closer than any of the other ones I could think of.

Yeah. Jord, did you have something else? Sorry. Uh, we like the railroad analogy minus the, you know, massive bust.

So true.

I I actually haven't studied the railroad boom and bust as much as we should study.

I mean, it was a very long long period of history. Yeah. Uh, fascinating. Well, thank you so much for coming in. Great to have you here in person. Really interesting.

Great to see you again. I love going a level deeper like this. This is fascinating. Uh, yeah. Please send anyone us uh send anyone on your team our way when you have news. Uh, and congratulations on everything that's going on in the world. Thank you so much for being here. Great to have you on.

Have a great day.

Congrats on the podcast.

Thank you so much.

Hang out for um

let me

uh

on before we jump I got to talk about uh my dear friend Brandon Jacobe who I saw in the chat earlier launched his uh new studio a multi-disciplinary design practice for those who challenge the boundaries of technology. He combined a Star Wars intro style uh video with a barrel. A wave.

A barrel. Oh, cool.

Uh,

okay. I'm visualizing that. I think he made this for us. You

do you want to pull it up?

Uh, there we go. There we go.

Look at this.

Motion design.

Oh, interesting. Yeah, this is both of us.

Our interest.

Yeah, this is perfect.

He made the launch video for an audience of two. For some reason, I was I was imagining the the text curling up like a wave and it being sort of hard to read, but this is much better.

I love it. It's a good statement. This is a mission statement. This is an essay.

Uh worked together uh for for a few years and uh he's been doing this.

He was one of the first personnel news we did on the show. We we tracked his move to X the everything.

Uh but anyways, he's been doing this kind of work forever. He was uh a design lead at at X as well as Cash App as well as my last company.

Uh and he's incredibly talented. So, he's open open for business.

Fantastic. That's our show, folks.

Let me tell you about Public Investing for those that take it seriously. They got stocks, options, bond, crypto, treasuries, and more with great customer service. And that is our show. We'll see you tomorrow at 11 a.m. sharp. Leave us five stars on Apple Podcast and Spotify. Sign up for our newsletter at tbpn.com. And we will see you tomorrow. Goodbye.