Investing.com -- Morgan Stanley initiated coverage of bitcoin miners turned AI infrastructure providers, arguing that companies with large, grid-connected power assets are well positioned to benefit from surging demand for AI data centers as hyperscalers race to secure electricity for compute expansion.

The brokerage said power has become the biggest bottleneck for AI infrastructure, making existing bitcoin mining sites attractive candidates for conversion into AI data centers. It expects demand for compute to continue outstripping supply, allowing owners of "powered shell" assets to command attractive lease economics as AI companies seek faster access to electricity. Morgan Stanley estimates U.S. data center developers could still face power shortages through 2028 even if all major bitcoin mining sites are repurposed for AI workloads.

Morgan Stanley initiated Overweight ratings on Hut 8 Mining and Riot Platforms, while assigning Equal-weight to Applied Digital.

The brokerage named Hut 8 its top pick, setting a price target of $263, implying about 141% upside from current levels. It said the company has consistently secured high-quality AI infrastructure leases and has one of the industry's strongest portfolios of power assets, positioning it to benefit from future data center expansion.

Morgan Stanley also rated Riot Platforms Overweight with a $36 price target, citing its large pipeline of powered sites, particularly the Corsicana and Rockdale campuses, which it expects to attract AI data center leases. The firm said Riot's existing grid interconnections and infrastructure could enable favorable economics as it pivots away from bitcoin mining.

Applied Digital received an Equal-weight rating with a $36.50 price target. While Morgan Stanley highlighted the company's sizable contracted AI data center lease portfolio, it said lower returns on invested capital relative to peers and financing risks tied to its development pipeline temper the upside potential.

Morgan Stanley argued that AI capabilities are advancing at a non-linear pace, driving sustained demand for computing power that exceeds available supply. It believes bitcoin mining companies with existing power infrastructure offer one of the fastest and lowest-risk solutions to address electricity constraints facing hyperscale AI developers, supporting long-term value creation for the sector.