Bitcoin Mining Expansion And AI Compute Network Will Drive Long Term Upside

Catalysts

About Cango

Cango operates a global Bitcoin mining platform and is building a distributed, green energy powered AI compute network.

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

• Scaling toward full utilization of the 50 exahash deployed hashrate, together with continued upgrades to T21 and S21 miners, is expected to turn operational efficiency gains and higher uptime into sustained revenue growth and stronger operating margins.
• Expansion of the global, asset-light mining footprint across the Americas, the Middle East and Africa positions Cango to capture upside from geographically diversified low-cost power, supporting lower all-in mining costs and more resilient earnings through Bitcoin cycles.
• Commissioning of clean energy projects in Oman and Indonesia over the next one to two years is set to secure dedicated, green power for both mining and AI workloads, improving long-term cost of revenues and helping protect net margins from energy price volatility.
• The strategic transition from pure Bitcoin mining toward a distributed AI compute network for small and midsized enterprises taps into rising demand for flexible GPU capacity, adding a higher value revenue stream that may lift blended gross margins and help stabilize earnings.
• Improved balance sheet structure through conversion of short-term borrowings into long-term debt, together with a growing Bitcoin reserve that can support structured financing, provides greater financial flexibility to fund growth projects with attractive return profiles while supporting future EBITDA and earnings per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Cango's revenue will grow by 20.4% annually over the next 3 years.
• Analysts are not forecasting that Cango will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Cango's profit margin will increase from -20.6% to the average US Specialty Retail industry of 4.9% in 3 years.
• If Cango's profit margin were to converge on the industry average, you could expect earnings to reach $52.7 million (and earnings per share of $0.12) by about December 2028, up from $-128.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $916.6 million in earnings, and the most bearish expecting $-448.0 million.
• 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 244.4x on those 2028 earnings, up from -3.2x today. This future PE is greater than the current PE for the US Specialty Retail industry at 18.9x.
• 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 11.65%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Cango's heavy dependence on Bitcoin mining exposes it to prolonged crypto price downturns and rising network difficulty. This could push its all in cost per coin, currently close to USD 99,383, above realized Bitcoin prices and materially compress revenue and net margins.
• The strategy to mine and hold Bitcoin rather than regularly monetize production may backfire in a sustained bear market. Unrealized losses on reserves and constrained liquidity could limit the ability to fund growth projects and weaken earnings resilience.
• High capital intensity in mining machines, a USD 365.7 million net book value, and a shift into AI infrastructure during a period when investors are questioning whether AI CapEx is entering bubble territory could lead to asset write downs or subpar returns on invested capital, dragging on future earnings.
• Reliance on long term related party debt of USD 405.1 million at a 7% to 8% borrowing cost, combined with volatile Bitcoin driven cash flows, increases refinancing and interest burden risks that could erode net income if sentiment toward crypto exposed balance sheets turns negative.
• Operational execution risks in scaling a global, green energy powered distributed AI compute network, including delays in commissioning Oman and Indonesia projects and intermittent uptime from weather or grid curtailment, could limit utilization of the 50 exahash deployed hashrate and new AI capacity, capping revenue growth and pressuring operating margins.

Valuation

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

• The analysts have a consensus price target of $3.0 for Cango 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 $1.1 billion, earnings will come to $52.7 million, and it would be trading on a PE ratio of 244.4x, assuming you use a discount rate of 11.6%.
  
• Given the current share price of $1.19, the analyst price target of $3.0 is 60.3% 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.