Crypto and AI - What can go wrong/right ? - Bitdeer BTDR US

Usual disclaimer: Do your own research. Not financial advice. I may own and sell the stock.

BTDR is a company most people are not aware of. It is also a company that most investors would struggle to "trust".  It is a bitcoin miner (fairly young in the industry) whose HQ is in Singapore but listed in USA, with a Chinese management team.

To be upfront, BTC mining is very difficult right now. BTDR is NOT profitable and it has a lot of debts on the balance sheet (around $2bn). Over the years, through its several debts/convertibles, shareholders were strapped to a volatile ride (up and down... more down than up to be frank).

Like the title of this post, Crypto and AI, what can go wrong ? By the way, this is being sarcastic.

If we put BTDR side by side next to the traditional miners like Riot or Cleanspark, I can see why the stock is "ignored" in USA even amongst the BTC crowd. Given the tension between China and USA in recent years, BTDR is in the penalty box with US investors.

Now that we set up the backdrop, why do we even bother with BTDR ?

First, let's consider the background of management. The founder/CEO of BTDR is Jihan Wu (owns 19% of BTDR at present). He was previously the co-founder of Bitmain. Bitmain is the dominant BTC miner in the world. He founded BTDR after splitting from Bitmain. His vision was to challenge Bitmain in BTC mining rig + building up a large BTC miner.

It certainly hasn't been a "cheap" vision. In past few years, to build up BTDR, he raised convertibles after convertibles. And since halving, BTC price tanked.... Frankly, the BTC mining + mining rig businesses have been disappointing.

Nevertheless, BTDR has become the second largest BTC miner in USA, if not the world. It has built up its BTC mining capacity to over 60EH. More importantly, its mining rigs are internally designed and produced. It has a substantial cost advantage vs. other US BTC miners who are paying $15-16/TH (vs. $10-12/TH for BTDR).

For now, at around $75K BTC price, its BTC business is NOT that interesting. Still bringing in cash flow over direct cost but overall the business is not that lucrative... Think of it as a turn around option. One day, when BTC ramps to $200K, BTDR be in great shape. Until, then it will be a hard slog.

Fortunate for BTDR, rise of AI is leading to insatiable demand for power/electricity in USA. BTDR is now looking to re-purpose its BTC mining sites in USA for AI and look to sign colocation lease for its main sites in Norway/USA. Apparently, the queue for new power connection to the grid can take as long as 4-5 years. Locations with existing power connection is highly sought after. BTDR is now converting several of its key BTC mining sites to AI.

It has 3 large sites in contention for Ai co-location at the moment (Tydal, Norway = 160MW, Clarington Ohio = 440MW, and Rockdale, Texas = 500MW). Market rate is around $2M per MW... Each co-location lease is going to be for 10-15 years. As we can see, if BTDR can successfully convert its 3 sites and secure tenants for them, BTDR will be earning over $2bn p.a. in data centre leases.

Furthermore, BTDR is converting its other smaller BTC mining sites in USA/Norway to AI neocloud (where BTDR will rent GPU like a hyperscaler) as well.. Adding another 120MW or so... Neocloud will bring in revenue of $10M/MW.... High value but smaller in power capacity. The downside to the business is capX will be very chunky (like $30M/MW)....

Now this is the key.... Its 3 co-location sites will be ready/online from Q4 26 through to end of 2027. Its 120MW neocloud capacity will be online from end of 2026 through to 2027.

If successful, its AI initiatives can bring in annual recurring revenue of as much as $3.8bn a year. (from $43M ARR run rate as of March 26). Furthermore, its AI business will earn very good EBITDA margin of as much as 85-90% i.e. EBITDA of $3.2bn.

Comparable data centre business is valued at between 15-20X EV/EBITDA. EV of BTDR can be as much as $45-60bn if it can secure clients for ALL its power capacities,.

BUT.... BTDR needs to fund capX of as much as $15bn to convert its sites to be AI compatible, as well as buying the GPUs from Nvidia. Say 20% equity and 80% finance... BTDR will need to raise $3bn at some point.

How it will work is, once it announces a deal, the stock will surge... Then BTDR will issue another convertible.... Rinse and repeat as it secures more AI contracts... Guarantee to be a volatile ride... AND there is NO guarantee that it will be able to secure contracts for its sites.  My take is Tydal is probable and will be announced in Q2/Q3. Key tell is BTDR has appointed a prime contractor for the site already so it is investing heavily in the conversion. Its second site in Ohio is uncertain as it is under litigation/blackmail from its neighbor. BTDR may need to buy him off. Its third site is still a work in progress.

So short term, stock can jump once it announces a contract for its site in Norway..I am personally prepared to bet on BTDR to win a contract in Tydal. Beyond that, it gets blurry.... BUT if it can successfully secure clients for ALL its sites by end of 2027, the upside will be substantial.

This is the bet (on AI alone).... MV = $3.8bn (@$15)... Downside to $6-7... Upside can be few X ($80-100 if optimistic)...My absolute upside case is $50bn MV (assume BTDR needs to raise $3bn or so... Upside for equity would be 7-8X assuming it needs to raise additional $3bn in equity then project finance the rest of capX). Short term upside can be decent (20%+) when the Tydal, Norway deal comes through (bet to make at current price)... Again, remember no one expects BTDR to come through with anything at all.... 

In the long run, there will be further upside when BTC price picks up to $200K....