Expanding Data Centers And Mining Will Unlock Bitcoin Potential

Key Takeaways

• Strategic expansion into data centers and efficient mining operations positions the company to benefit from rising AI, cloud, and Bitcoin demand.
  
• Flexible asset utilization and a strong financial position support sustained profitability, margin stability, and resilience against market volatility.
  
• Heavy reliance on fluctuating Bitcoin prices, intense competition, and unproven data center expansion expose Riot to revenue, margin, and operational risks amid substantial ongoing investment.

Catalysts

Operates as a Bitcoin mining company in the United States.

• Riot's aggressive build-out of a scalable data center business leverages its extensive, readily available power capacity in high-demand regions, well-positioning the company to benefit from surging demand for AI and cloud computing infrastructure-this is likely to drive higher revenue growth and improved valuation multiples over time.
  
• The company's expansion of vertically integrated mining operations, with ongoing deployment of new, more efficient hardware and a continued focus on operational efficiency, supports increased hash rate and lower unit costs, enhancing Bitcoin production and potential gross profit even as mining difficulty rises.
  
• Riot's strong balance sheet-with over 19,000 Bitcoin, $330 million in cash, and secure access to capital markets-provides flexibility to pursue growth opportunities, reduce dilution, withstand volatility, and selectively allocate capital between mining and data center initiatives, supporting sustained earnings growth.
  
• The ability to monetize megawatts flexibly-by shifting power use between mining and data centers depending on market conditions-maximizes asset utilization and provides a natural margin hedge, underpinning higher and more stable net margins.
  
• The broad, long-term trend of increasing mainstream and institutional acceptance of Bitcoin and digital assets, combined with Riot's scale and low-cost operations, creates compelling leverage to future increases in Bitcoin price and adoption, offering outsized potential for revenue and EBITDA expansion.

Riot Platforms Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Riot Platforms's revenue will grow by 22.4% annually over the next 3 years.
• Analysts are not forecasting that Riot Platforms will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Riot Platforms's profit margin will increase from -17.5% to the average US Software industry of 12.7% in 3 years.
• If Riot Platforms's profit margin were to converge on the industry average, you could expect earnings to reach $125.7 million (and earnings per share of $0.28) by about September 2028, up from $-94.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $643.0 million in earnings, and the most bearish expecting $-425.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 80.2x on those 2028 earnings, up from -59.3x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
• 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 8.85%, as per the Simply Wall St company report.

Riot Platforms Future Earnings Per Share Growth

Risks

• The company's financial results are heavily influenced by unrealized mark-to-market gains on Bitcoin holdings, making reported net income and EBITDA highly sensitive to volatile Bitcoin prices; a significant or sustained reduction in Bitcoin's price would materially reduce reported earnings, revenues, and gross margins.
  
• Although investing heavily in expanding data center capabilities, Riot has yet to secure significant lease agreements; delays or inability to attract high-quality tenants could leave substantial power capacity underutilized and result in lower-than-expected revenue growth and return on invested capital.
  
• Rapidly rising global Bitcoin network hash rate is outpacing Riot's hash rate growth, which reduces market share and Bitcoin production, indicating that increasing competition and network difficulty may pressure future revenues and gross margins from mining operations.
  
• Persistently high capital expenditure requirements for new mining equipment, data center development, and related infrastructure-especially without accompanying revenue streams-risk compressing net margins and free cash flow, increasing Riot's financial exposure if industry conditions or financing availability worsen.
  
• The company's geographic concentration in Texas exposes it to region-specific regulatory, energy market, and weather risks (including new legislation such as Texas Senate Bill 6 and potential grid constraints), creating material operational and cost uncertainties that could impact profitability and long-term earnings potential.

Valuation

• The analysts have a consensus price target of $17.279 for Riot Platforms based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $992.8 million, earnings will come to $125.7 million, and it would be trading on a PE ratio of 80.2x, assuming you use a discount rate of 8.9%.
• Given the current share price of $15.21, the analyst price target of $17.28 is 12.0% 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.