Bitcoin Adoption And Data Center Constraints Will Drive Long-Term Mining Demand

Catalysts

About American Bitcoin

American Bitcoin is a U.S. based Bitcoin accumulator that combines industrial scale, asset light mining with an active Bitcoin treasury strategy to maximize Bitcoin per share.

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

• Rising global adoption of Bitcoin as a reserve and investment asset, supported by corporate, institutional and sovereign balance sheet demand, expands the long term addressable opportunity for American Bitcoin's compounding model and can accelerate revenue growth and earnings power as reserves scale.
• Structural constraints on new power intensive data center loads, combined with growing grid need for flexible, curtailable demand, make Bitcoin mining an increasingly favored customer for utilities, which can sustain American Bitcoin's access to low cost power and support higher gross margins and net margins over time.
• Continued ASIC efficiency improvements, together with American Bitcoin's ability to finance next generation hardware through Bitcoin backed structures and its Hut 8 partnership, should let the company increase hash rate density at a discount to peers, improving capital efficiency and long run returns on equity and earnings.
• Expansion of fixed income and hybrid capital markets willing to finance Bitcoin linked strategies at single digit yields creates an arbitrage opportunity for American Bitcoin to raise long dated capital and convert it into higher growth Bitcoin exposure, which can amplify Bitcoin per share growth and future free cash flow.
• Ongoing consolidation and rationalization in the digital asset treasury and mining space, where many smaller or reverse merger peers face execution and balance sheet challenges, positions American Bitcoin as a potential acquirer of discounted Bitcoin and infrastructure, supporting faster reserve growth, revenue expansion and operating leverage.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming American Bitcoin's revenue will grow by 47.2% annually over the next 3 years.
• Analysts are not forecasting that American Bitcoin will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate American Bitcoin's profit margin will increase from 135.9% to the average US Software industry of 12.4% in 3 years.
• If American Bitcoin's profit margin were to converge on the industry average, you could expect earnings to reach $48.5 million (and earnings per share of $0.04) by about December 2028, down from $166.4 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 120.5x on those 2028 earnings, up from 10.2x today. This future PE is greater than the current PE for the US Software industry at 32.7x.
• 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 8.76%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• American Bitcoin's model is structurally tied to long-term appreciation in Bitcoin as an asset class, so any prolonged period of Bitcoin price stagnation or decline would compress hash price, reduce the value of reserves and undermine the thesis that Bitcoin per share growth alone will drive shareholder returns. This would directly pressure revenue growth and net income.
• The company is very young, has scaled reserves from zero to 3,418 Bitcoin in about seven months and is rapidly expanding exahash capacity. This heightens execution and operational risk in complex liquid cooled data center environments and could lead to outages, inefficiencies or cost overruns that erode the currently high 56% gross margin and dampen earnings.
• The strategy relies heavily on low cost, flexible power and favorable grid relationships in specific U.S. regions such as the Vega site in Texas. Changes in regulation, community sentiment or power market dynamics over the long term could raise energy or colocation costs and reduce the structural margin advantage that supports high gross margins and operating leverage.
• Management intends to use Bitcoin backed financing structures, fixed income markets and potential M&A to amplify Bitcoin exposure. However, the inherent cyclicality and volatility of Bitcoin increases the risk that leverage, encumbered reserves or poorly timed acquisitions could magnify downside in a downturn, impairing the balance sheet and putting sustained pressure on earnings and free cash flow.
• The company’s long-term edge depends on maintaining leading ASIC efficiency and access to next generation hardware through its Hut 8 partnership. Rapid technological shifts, supply constraints or better financed competitors could erode this advantage and force American Bitcoin to spend more capital for similar hash rate, weakening capital efficiency, compressing returns on equity and limiting future earnings growth.

Valuation

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

• The analysts have a consensus price target of $4.0 for American Bitcoin based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $391.0 million, earnings will come to $48.5 million, and it would be trading on a PE ratio of 120.5x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $1.83, the analyst price target of $4.0 is 54.2% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.