Bullish View Sees Bitcoin Mining And AI Compute Platform Driving Long Term Upside

Catalysts

About Cango

Cango operates global Bitcoin mining operations and is building a distributed AI compute and clean energy infrastructure platform.

What are the underlying business or industry changes driving this perspective?

• Scale in Bitcoin mining, with 50 exahash deployed and 1,930.8 Bitcoins mined in the quarter, positions Cango to leverage any future growth in self mining output, which directly influences revenue and earnings power.
• Continuous focus on hashrate optimization, including upgrades to T21 and S21 series machines and uptime around 90%, supports lower unit costs and higher operational efficiency, which can improve net margins and operating income.
• Build out of a global, asset light mining and energy footprint across the Americas, the Middle East and Africa together with the owned 50 megawatt Georgia facility, creates access to diverse low cost power sources that can support both mining and AI compute, affecting long term cost of revenues and capital efficiency.
• Planned transition from pure Bitcoin mining toward a distributed AI compute network, with pilots under clear IRR thresholds and a focus on serving small and midsized enterprises, opens up additional revenue streams linked to high performance compute demand and could support earnings diversification.
• Clean energy projects in Oman and Indonesia expected to be commissioned within 1 to 2 years, combined with the SLI plus Edge First approach to distributed GPU pools, may give Cango access to greener, potentially more stable power and differentiated AI infrastructure economics, with the potential to support both revenue growth and steadier EBITDA.

Assumptions

This narrative explores a more optimistic perspective on Cango compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Cango's revenue will grow by 8.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -20.6% today to 95.5% in 3 years time.
• The bullish analysts expect earnings to reach $761.8 million (and earnings per share of $1.95) by about January 2029, up from $-128.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.4x on those 2029 earnings, up from -3.8x today. This future PE is greater than the current PE for the US Specialty Retail industry at 20.1x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Cango's core revenue is currently heavily concentrated in Bitcoin mining, with US$220.9 million of the US$224.6 million third quarter revenue coming from mining. A prolonged period of weak Bitcoin prices or higher network difficulty could pressure mining revenue and squeeze earnings if costs per coin remain close to the current all in level of US$99,383.
• The mine and hold approach for Bitcoin, alongside US$660 million of receivables for Bitcoin collateral and US$405.1 million of long term related party debt, increases exposure to digital asset price swings and financing conditions. This could affect balance sheet strength and future net income if Bitcoin values or funding access weaken.
• The planned build out of a global distributed AI compute network and green energy projects in Oman and Indonesia relies on capital intensive infrastructure that is still in early stages. If industry returns on AI CapEx continue to be questioned or project IRRs fall short of thresholds, future AI related revenue and overall earnings diversification may not materialize as planned.
• Operating uptime is currently around 90% versus 50 exahash of deployed hashrate. Ongoing factors like extreme weather, grid curtailment and integration of new sites mean utilization may stay below full capacity, which would keep unit costs elevated and limit potential improvements in net margins.
• The mixed model of leased sites plus selective owned facilities such as the 50 megawatt Georgia site, combined with borrowing costs in the 7% to 8% range, adds fixed obligations that could become a drag if power prices, regulatory conditions or demand for Bitcoin mining and AI compute turn less favorable. This could put pressure on operating income and cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Cango is $4.0, which represents up to two standard deviations above the consensus price target of $3.5. This valuation is based on what can be assumed as the expectations of Cango's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $797.9 million, earnings will come to $761.8 million, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $1.41, the analyst price target of $4.0 is 64.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.