TeraWulf Inc. (WULF) experienced a 5.17% pre-market plunge on Tuesday, as investors reacted to a price target downgrade from analysts and concerns about the potential impact of AI advancements on the company's business model.

Roth MKM lowered its price target on TeraWulf from $11 to $9, while maintaining a Buy rating on the stock. The firm cited higher costs and ongoing power negotiations as factors contributing to the downgrade. According to the analyst, if TeraWulf can keep its annual average power cost under $0.05/kWh, its mining results should remain stable.

Additionally, TeraWulf disclosed a new risk related to advancements in AI model efficiency, which could potentially threaten the company's data center business model. As AI models become more efficient, the demand for TeraWulf's computing power may be impacted, posing a significant challenge to the company's operations and revenue streams.