Bull Thesis 🚀

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Bull Thesis 🚀

In this episode, we will cover:

• Market Recap & Bitdeer Price Drop
• What Makes Bitdeer Unique
• Revenue Breakdown & Dead Segments
• Rise of SealMiner: Vertical Integration Strategy
• Margin Profile by Business Line
• Future Earnings from SealMiner Sales
• Mining Power Growth & Efficiency
• Cost per Terahash vs Competitors
• Efficiency Upgrades in A3 & A4 Models
• Potential ASIC Market & Revenue Scenarios
• Valuation: Forward PE & Upside
• Insider Confidence & Call Option Moves

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salam@practicalislamicfinace.com

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Anything you hear in this video is an opinion. It is not personalized financial advice. Make sure you do your due diligence before making any investment decisions.

Transcript

Assalamu alaikum everyone. I hope you are doing well. Today is Wednesday, June, and today we had a relatively red day in the market, not terribly red, but red nonetheless. And this is to be expected. Keep in mind, we have hit all time highs on many major indices here and a pullback, or at least a consolidation is to be expected. Looking at the major indices, the Russell was down one point one percent. The Dow Jones was down point two five percent. S&P was flat and the Nasdaq eked in a slim green number, point two one percent. Tesla was down three point seven percent. Bitdeer, the topic of this live, was down two percent, has been a pretty good tough time holding this stock since the beginning of the year. It is down close to fifty percent. So I'm going to go over today what I think of this stock and the bull thesis for it and whether or not this stock or the bull thesis rather still holds. Looking at crypto, Bitcoin is at one hundred and seven thousand. Very robust performance from Bitcoin, really unbothered. in a big way by geopolitical tensions and crises. It's held firmly really above the hundred thousand mark ever since it passed it recently. Solana is at one forty two and Doge is north of sixteen cents. So let's go to the bull thesis for Bitdeer. what has to go right why would someone own this stock at this particular point um so to understand this double thesis it's important to understand the state of the company at this particular point in time but there is a is a bitcoin miner and uh what makes it unique is the fact that it is investing in vertical integration that means it not it's not going to just buy the bitcoin miners from some other supplier and just run it which is the case with pretty much all bitcoin miners right now that's how they operate uh they basically just buy the land or they lease the land and they have the power connections needed. And then they buy the Bitcoin miners from suppliers. Typically it's Bitmain, they're the major supplier. And, um, eighty percent typically of capex for these Bitcoin miners goes to the Bitcoin miner manufacturer, the rig manufacturers. And so Bitdeer decided, no, why don't we just make our rigs ourselves? That way we make this Bitcoin mining process a lot more profitable for us. And also we can sell these rigs to other miners and we can get some of that margin to ourselves. And so something really, I think, pivotal happened in Bitcoin. the history of this company, which is that in the last quarter, Q. One twenty five. And I understand that this picture is blurry. I apologize for that. But all you need to see is basically the colors here. So the orange color is self-mining revenue for the company. The red is cloud hash rate. And you can see that business basically went to zero. That's basically a business that's only viable for during the peak of the bull market. And really the revenue that they had in the last two years from this business segment was a function of contracts that they were able to get in place during the peak of the last bull market. And revenue from those contracts, as you can see in red, basically tapered off. And I really think that this is a business that is dead. The company may argue that this is a lever it can pull in periods of hype, but I honestly don't see how the cloud hash rate makes any economic sense. I mean, it's hard enough to... to actually host the machines yourself and do the mining yourself and eke out a profit. It's hard enough to do that, let alone if you want to actually contract a third party to host your machines for you or actually rent out hash rate from a third party. Basically, there's no way you're gonna be profitable doing things that way. Um, and then you have, um, the gray general hosting. Again, this is another for the same reasons. This is where you're hosting other people's machines. That business is going to go to zero as well. Membership hosting, not bullish on that either. Uh, so basically, and then you have the, um, the pinkish color, that's the seal miner sales. And the last quarter is the first quarter where Bitdeer had seal miner sales. That's the name of their Bitcoin mining rigs. And you can see it up here in the last bar, Q. One twenty five for the first time in the company's history. And this is a company that is in transition. This is a company that I think you're going to see that pink color start to increase in size and occupy a greater and greater percentage of the overall revenue mix for this company. And the rest of the revenue is going to come from self-mining, which may be more profitable for Bitdeer than any other miner because they make their Bitcoin mining rigs themselves and don't rely on a third party to provide those rigs for them and therefore don't pay that third party a a part of the profit from the mining process. And so if you look at the margins for these different lines of business, then it's actually a relief to get that blurry picture off of the screen. If you look at the margins for self-mining, very tough margins, negative ten percent in the last quarter, cloud hash at zero, general hosting five point two, membership at five. these margins stink. The only margin that is actually good is the seal miner margin coming in at around twenty percent. And I think with economies of scale, that gross margin can increase. And especially if we look at the demand, the anticipated demand for the seal miners, this margin can increase. And really the profile for this company in terms of its profitability can change in a dramatic way once steel miners actually constitute a bigger percentage of the revenue mix for this company and in their last in their last earnings they did mention that they sold a total of one point three that exahash of their seal miner a twos but The only revenue that was recorded in last quarter was for point three X a hash. So in the next earnings report, there's an additional one X a hash, uh, of a two sales now that had already been made, uh, that will appear. And that's going to, uh, really show the seal minor, uh, growth, uh, quarter to quarter. And I think that will be a very, uh, uh, good for the company and how it is viewed. And if you look at revenue, I expect that to, you know, from steel miners, I expect that to double and triple and more moving forward. Quarter to quarter, that is. And if you look at where a lot of the miners are going, a lot of them are going towards Bitdeer itself. So it is using the miners that it makes. Again, they haven't really achieved economies of scale yet with their seal miner production. And so what's coming off of their production line is going first to their own racks and they're using them to mine Bitcoin themselves. And you can see that in the purple line representing the amount of mining power that the company has. And it has really gone upwards in a big way and a much more acute trajectory than previously. And so it's possible that Bitdeer becomes the first public miner to actually crack the code of mining Bitcoin in a profitable way consistently. And that is through vertical integration. That is through making your own mining machines. And if you look at the cost per terahash for these new Bitcoin miners, the A-twos, and by the way, A-threes and A-fours are scheduled to, the next generation are scheduled to come out in the second half of this year. But if you look at the cost per terahash, and really, if you're looking, if you're a Bitcoin miner, that's the number one thing you are interested in. when you're deciding what which mining machine to purchase, you want to look at, okay, how much is it going to cost for an additional terahash of mining power? And this may be tough to see, but if you look at Bitdeer's cost per terahash, it's actually at, you know, with their SealMiner A-to-Pro platform, it's uh nine dollars uh and forty cents uh a per terahash and whereas with uh bitdeer seal miner um a two it's uh nine eighty two and then you compare it to uh bitmain and uh most of their costs are much higher than that. So you have the main Antminer S-XXIII, that's S-XXIV-XXVIII. The S-XXI-E, that's S-XX-XXIX. The Antminer S-Nineteen, for example, that's fifteen sixty one. So, you know, a third or even fifty percent higher, sometimes one hundred percent higher in terms of cost per terahash for these competing miners. And with their A-twos, I think the the efficiency was around nine point seven joules per terahash and term so that's how much electricity is consumed per terahash here I'm talking about the cost of the of the rig itself the way it's priced so there is there is room for bit there to actually increase the cost of the rigs uh that they sell and it would still make sense for um bitcoin miners and it would actually cause their their margins to increase. And so, and this is with regards to their A-two, if you look at, again, I said, nine point seven joules per terahash was the efficiency of that. If you look at the A-threes and A-fours, they think they can get that down to five joules per terahash. The lower the number, the better, the more efficient. Five joules per terahash is basically better than anything that's on the market. They think that they can have at least a prototype ready by the end of this year. Perhaps mass production will only go into effect start of next year, but they're moving very quickly here and they're making a compelling case or giving the number one producer of Bitcoin rigs or Bitcoin mining rigs, that is Bitmain, they're giving the number one producer of rigs, I run for its money, really. In terms of their efficiency, their cost, they're competing with them. And I think that there's a non-zero chance that they can take you know the number one or at least the number two position in the industry uh with regards to bitcoin mining rigs so selling the picks and shovels in the bitcoin era the race for bitcoin the bitcoin you know gold rush as You may know when we had the gold rush in the United States, the people that made the most money were the people selling picks and shovels for people who were looking to look for gold. And perhaps something similar plays out here where the people selling the picks and shovels for mining Bitcoin end up making a lot of money as well. And so if you look at the potential here for the ASIC market, so referring to the Bitcoin miners, the potential here is quite large. And in their last earnings presentation, Bitdeer had a number of different scenarios in one of their slides, and they kind of went with the middle-ish scenario and came to the conclusion that there would be around twenty one billion in potential ASIC revenue between the years two thousand twenty five and two thousand twenty seven. So in the next twenty four months, basically, and they think that they can in their in that bottom table you can see different scenarios so if they're able to capture thirty percent market share or forty percent or fifty percent uh what are the implications for revenue for bittier if they're able to to capture thirty percent of the market that's comes out to six point four billion for from seal miner revenue alone you know, not counting any other sources of revenue for the company. And this is a company that is also investing in high performance computing, just like some of like Iris Energy, which we covered yesterday and other Bitcoin miners. So and that is likely going to become another major revenue contributor for this company. But if we're just looking at the revenue from seal miner sales, that could be north of six billion. And so this is a company that has, I think, a very likely shot I think rather than I use the word likely, but I think it's very plausible that this company is able to capture a significant market share based on the performance of its current products and what it has lined up. It's very plausible that this company captures a significant market share in this Bitcoin mining rig market and it is either number one or number two in this market. And its margins will improve dramatically and not look anything like what they have looked in its previous phase when it was doing hosting miners and cloud hash and all of that nonsense. it's going to be a company with a different profitability profile than what it has sported in recent years. And with that, it will command a different valuation. Now, if we look at the PE of this company, company, assuming the consensus earnings estimate for twenty twenty six, for example, the PE is around is less than fifteen at current price. If you look at twenty twenty seven, it's around five point six nine at the current price of the company. So that implies a bit there is in our emerging growth portfolio, which attempts to invest in companies that will Tenex in the next five years. If the median and the median for the industry is a PE of around twenty one, that means that to have a PE of twenty one in twenty twenty seven, which is, you know, eighteen months from now, it would need to basically forex. So the the opportunity here, I think, is a compelling one. And given the level of insider ownership and some of their moves that they've made in terms of convertible notes, that gives me confidence. And they had call options in those. They used some of their proceeds from the convertible notes to buy call options, which is... Something I don't need to get into right now, but it basically reflects the confidence that the company has, that management has in the direction of the share price for its stock. That is, it is betting on itself. It is betting that the share price goes up over time, given all of this. I think Bitdeer is presenting a compelling opportunity for investors, not financial advice, obviously. This is just my bull thesis for the stock. And I wanted to share it with you because, as I mentioned, it's been quite a painful hold for many investors since the beginning of the year. It's basically half. But this is why we hold it. And so with that being said, if you'd like to follow our portfolio, Move for Move, make sure to join PIF. The link to do so is in the description. Make sure you like this live if you enjoyed it. I really enjoyed going over these theses that I have and different companies that I'm interested in and things that I research. And so if you enjoy them, then let me know by leaving a like. I'd really appreciate that. All right, Salamat Rashad, nice to see you. If the geopolitical tension continues to rise, any special strategy moving forward? Yeah, the special strategy is to have dry powder as much as possible, take profits when things get near our sell price or exceed them and rotate the dry powder that you generate from selling, from taking profits into more compelling uh opportunities and use our watch list make use of our watch list to see you know upside potential upside conviction scores that in order to guide you in your rotations or at least inspire you again not financial advice brother amir assalamu alaikum can you shed some light on intc I'm having thousands of it. And my average purchase is, uh, perhaps I'll look into Intel in a, a different life. Um, But just my initial impression is that why invest in the second best company or third best or fourth best company? Why not go for the best of breed? And Intel is not the best of breed, not right now. And so if you have any sort of insight or if you have an insight into Intel that compels you to buy it, then that's different. But I personally don't have one. none of yes says assalamu alaikum brother kamalik sam if you haven't talked about bit deer could you give us a short analysis of where it's headed well this entire live was devoted to a bit there so I'll definitely give it a watch yep uh Thank you all for tuning in. As I mentioned, become a PIF member if you haven't already. Leave a like if you enjoyed this live. Until next time, make sure to take care of yourself. Assalamualaikum and peace be upon you all.