Is This Bitcoin Miner Poised to Pop?

As-salamu alaykum, everyone. I hope you're doing well. Today is Tuesday, May 21st, and Bitcoin is close to its all-time high, north of 70,000. Congrats to everyone who has held. And today we're going to talk about a Bitcoin miner that we've spoken about before on this channel, Iris Energy. They reported earnings last week. They have since reported earnings, been on quite a run, as well as other Bitcoin miners as well. So we're going to talk about what they reported in their latest earnings and the potential here for greater gains, because I know that a lot of people may be wondering, is it time to sell or not, considering how much in profit we are. So let's try and address that question in this video. If you appreciate these types of videos, do leave a like. I'd really appreciate that. So let's get started. As always, this is not financial advice. Be sure to do your own due diligence before you make any investing decisions. So how does Iris make money? Well, there are two lines of business, actually. One of them is Bitcoin mining. Obviously, this is the lion's share of this company's revenue. They're also quite bullish. The CEO is quite bullish on AI cloud services that is using their data centers that can have dual use for crypto mining, as well as providing compute for AI services, using the compute power that the company has in order to generate revenue. And what the CEO described is basically a burst up, burst down system, wherein customers are not locked into specific contracts. They can basically use the compute that Iris has on demand and basically pay for what they use, which is an attractive value proposition that not all data centers provide. So a lot of times you have a fixed contract and basically it's regardless of use, you're paying a certain price that's agreed on. With Iris, I think they correctly identified that being a more competitive offer would entail having this burst up, burst down system where customers could pay for only what they use. Now, in terms of Bitcoin mining, they have revealed a pretty aggressive path, even more aggressive than was previously thought by investors. So currently they have 10x a hash of mining power. They plan on expanding to 20x a hash by the third quarter of 2024 and tripling their current x a hash by the end of the year. So reaching 30x a hash. And by the first half of 2025, reaching 40x a hash. So this would put them, based on the plans of other miners, this would put them in the top three or top four publicly traded miners in terms of mining power. So the top three or four would be Riot, Marathon, CleanSpark and Iris Energy, assuming that the plans of these companies remain what they are and assuming that Iris actually achieves its targeted mining capability. Now, what's unique about Iris Energy is that they already have the land and power necessary to achieve the 40x a hash. In fact, if you look at their target efficiency, which is 15 joules per tera hash, the amount of power that you need to reach 40x a hash with that amount of efficiency is actually around 600 megawatts. Now they do have 3000 megawatts of power that they have access to. So theoretically they could reach a maximum x a hash or mining power of 200x a hash if they were to utilize their entire, all of their power that they have access to for Bitcoin mining, they could reach 200x a hash. So this is something that is unique about Iris Energy that I don't think other Bitcoin miners have. And I really think that access to power is going to be one of the main differentiators between these Bitcoin miners, access to cheap power at that, which Iris Energy has. Now let's talk about their AI cloud services, which are minuscule in comparison in terms of revenue to their Bitcoin mining business. And we'll see the numbers in a second, the comparison that is, but I think that it's a line of business that is growing quite fast and it has the potential to be quite significant contributor to the bottom line for Iris Energy, especially when you consider the profitability of this line of business. So you can see that in February 24, they had 2 million, March 5 million, April 8 million, and that's their annualized revenue from this. And so they think that annualized revenue from the current GPUs, 816 GPUs that they have could be 14 to 18 million. Now that's not really saying much when you compare it to the coin mining business that they have, where they think the annualized hardware profit from 30x a hash, which is what they're targeting for the end of the year, would be around 408 million versus the 816 GPU cluster, 14 to 17 million, as we mentioned. But the interesting thing about this, what I think perhaps many investors are not paying too much attention to is the difference in gross margins. So if you look at the revenue per Bitcoin mine, right now it's close to 71,000. Perhaps it gets to 100,000 by the end of this year. But the electricity cost to mine, given the current difficulty in mining, it's around 17K. You have profitability expected to be, well, right now, it's between 80 and 90%, which is not that bad in terms of gross margins. But if you look at the electricity cost versus revenue for the AI cloud services, you have a revenue of $2.50, whereas the electricity cost is only $0.06, so that's 97% gross margins. So there's actually more profitability in the AI cloud services business. And something that's really attractive about the AI cloud services business is that this has the promise of smoothing out the cycles for this particular stock, even though I don't think Iris Energy is a long-term hold as of yet, because they haven't developed their cloud services yet in a way that would think of them as something other than a Bitcoin miner. So because the Bitcoin mining stocks have these very violent cycles on the way up and on the way down, I still think of Iris Energy as a trade and not a long-term investment, something that you have to get out of at the right time, because when this crashes, it's going to crash hard, along with all the other Bitcoin miners. If the previous cycles are an indication, however, to the extent that they develop their AI cloud services, they may be able to smooth out that cycle significantly. So if AI cloud services and the compute that they provide actually ends up being a significant portion of their revenue, well, then when the price of crypto is in a trough, they can switch to the more profitable AI cloud services and providing compute for that until it makes sense really to switch over to cryptocurrency mining. But this duality is actually extremely useful, and I think it's important for the company to develop it if it wants to be something other than a Bitcoin miner with a lot smoother cycles. Now, something that was quite sort of interesting and stimulating of the imagination is a Morgan Stanley recent report that valued access to power at around $5 to $12 per watt. Now, Iris Energy has 3,000 megawatts access to 3,000 megawatts, so that's 3 billion watts. Now, if you multiply 3 billion by 5 to 12, you get 15 to 36 billion in potential value here that Iris Energy can unlock. Now, there's still a lot of infrastructure development that needs to happen in order for this 15 to the 36 billion in potential value to be unlocked. However, if we are to take Morgan Stanley, there were that face value, and this is the actual value of access to power, then considering the market cap of Iris Energy currently is only 1 billion, you can see how the upside potential here is quite substantial. I typically like to invest in companies where I think there's a decent chance of doubling in one or two years, and I think that this applies here for Iris Energy. They also have a strong balance sheet, which is extremely important. So they've reached this point of owning land and having access to power supply that could get them to 200 exahash. They've reached a point of 10 exahash with 20 exahash fully funded for the third quarter of 2024. They've reached all this without really using much debt, which I think is quite unique for Iris Energy compared to Bitcoin miners. One of the selling points that caused us to add Iris Energy to PIF portfolios. Now, as I mentioned, in terms of their plans for expansion, the 30 exahash, or I'm sorry, the 20 exahash is fully funded. They actually has $322 million in cash, which will cover their expansion to 20 exahash. Their 30 exahash in the fourth quarter of 2024 will require some dilution. So there's $190 million that's needed for the ASICs hardware, $110 million for the data centers. Now, keep in mind, they are generating revenue. In fact, they're generating profit at this point. So they do have that, that they can tap into. And this is a Bitcoin miner that doesn't huddle any Bitcoin. They sell everything that they mine almost immediately. So they're going to get some funding from that. They have existing cash. But also something that is, I think, good is that when they initially announced $500 million at the market at the near the earnings, they were close to $500 million in market cap. So the $500 million at the market offering that they had access to was basically 100% of their market cap. So if it were to be tapped into at that time, it would dilute shareholders 100%. You'd have to double the amount of shares in order to extract $500 million from the market. However, now, a week later, we're knocking on the doors of $1 billion in terms of market cap for this company. So $500 million there at the market is only half of that. But also, they only require $300 million to reach their fourth quarter target of 30x a hash. So that means dilution need not be more than 30% for shareholders. Now, if the management will allow the stock price to appreciate a bit, they can get an even better deal for shareholders. If they don't look at current share price and get greedy and start diluting shareholders now and wait a bit to dilute shareholders, they can get an even better deal on the market offering. So hopefully that happens. They let the stock run for a bit because management has had a habit of being trigger happy. I'm hoping the fact that they're fully funded for their third quarter 2024 plans gives them some patience here. But I am comforted by the fact that there is decent insider ownership. So individual insiders own close to 10% of the company's stock. So this helps align the well-being of the shareholders with management. So this is always a positive thing, which should reflect itself in the level of attention that management pays to the shareholders' interests, considering they themselves are shareholders. So the price target here, it's a moving target based on the most recent numbers that we get. Obviously, the Bitcoin network difficulty in terms of mining and the Bitcoin price and the expansion plans and execution on it for Iris Energy. If you'd like to see our most recent price targets, buy below, sell above price targets for Iris Energy, do become a PIF member. You can also see our trades move for move and join our community of Halal-conscious investors. So with that, let's take some questions. Rashad, nice to see you. Samer Khan, what do you think about Tesla if shareholders decide not to pay Elon's pay package? I don't think anything fundamentally changes about Tesla. Some people I've heard were speculating that Elon would leave Tesla. I don't think that's going to happen. I recently actually listened to the Walter Isaacson's autobiography or biography of Elon Musk. And from that, I think it gives you insights into his personality. And leaving Tesla doesn't really seem like that is in line with what I understood of Elon Musk's personality. I don't think you would leave Tesla. I think one option that could happen if Elon doesn't have the percentage ownership that he aspires to is that they could just decide to start buying back shares and reducing the number of shares, which would increase the percentage that each shareholder actually owns of the company. So that could be one way for Elon Musk to reach his target ownership. And they do have a lot of cash on hand. So that's always an option. I would ignore the doomsayers here who think that this could fundamentally alter Tesla's trajectory. I just don't see that. How long are you planning to hold Iron? It's a good question. I think I'll be out of Iron before the end of this year, or maybe even much sooner than that. So I like to be data driven. So I'll let the data tell me when it's time to get out. Inshallah. Alright guys, make sure to become a member. If you aren't already, leave a like, subscribe for more content like it. And until next time, make sure to take care of yourself. Have a great day. Asalaamu Alaikum and peace be upon you all.