Devrimb/iStock via Getty ImagesTeraWulf (NASDAQ:WULF) is a domestic bitcoin miner that owns and operates vertically integrated and environmentally clean facilities. The stock just broke out of a multi-month trading pennant that started late last year. Shares appear ready to move considerably higher over the summer, and especially if Bitcoin pricing can continue its upward trend in the second half of 2024. Further, WULF has a pilot program towards the development of data centers to capitalize on the growth in demand for locations to house the power-hungry processes of generative AI and related complex computing. As a result, I recently added exposure to WULF. TeraWulf currently operates a wholly owned Bitcoin mining facility in Lake Mariner, New York, and is part of a JV operating the Nautilus Cryptomine Facility in Berwick, Pennsylvania, along with Cumulus Coin and Talen Energy (OTCQX:TLNE). Talen owns and operates the Susquehanna nuclear power plant that provides Nautilus with a fixed cost of $0.02/kWh for its zero-carbon power for the next few years. TeraWulf’s Lake Mariner facility is powered by hydroelectric electricity from a Niagara river facility that boasts 93% zero-carbon power at an annual average cost of $0.04/kWh. Both facilities are capable of substantially ramping their mining capacity. WULF has plans to make significant increases over the next year through already made purchase and option agreements for S21 miners. WULF’s past and future BTC mining growth (TeraWulf’s May 2024 Investor Update)Additionally, the company has been reducing its debt this year, and expects to be debt free within 2025. TeraWulf’s ability to pay down debt is largely premised on its profitable mining operations, where it sells the Bitcoin it mines. Many large publicly traded Bitcoin miners switched to a ‘hodl’ strategy in 2021 or shortly thereafter. This distinction may allow WULF to not only become debt free, but also keep it from undertaking the significant level of dilution that proliferates the business. WULF’s debt repayment since Q4 2023 (TeraWulf’s May 2024 Investor Update)In addition to paying down its existing debt, WULF’s future operating cash flow is likely to be reinvested into the company’s ambitions for growth. These growth aspirations include both their Bitcoin mining operations and data centers for power-hungry processes such as generative AI and related complex computing. Operating AI data centers should be a highly complementary business to Bitcoin mining, where both require large optimized facilities with access to competitively priced energy, and ideally renewable energy. This secondary line of business should be expected to eventually attract a second investor base. It is reasonably likely that a growing number of investors will increasingly allocate into high-speed parallel processing of complex computations that are powered by cheap and renewable energy sources, such as those WULF intends to develop. After the semiconductor and hardware companies, leasable AI data centers appear to be the next pure-play within the ongoing AI revolution. I believe that it is probable that the marketplace will soon lump Bitcoin miners and AI data centers into a combined umbrella asset class that I currently think of as nodes acting as utilities. The primary difference between an AI data center and a Bitcoin miner is that the mining operations utilize Application-Specific Integrated Circuit (‘ASIC’) hardware, and the AI model are using Graphics Processing Unit (‘GPU’) hardware, but the best of both tend to be made by the same chip designers. WULF’s stock recently broke out of what appears to be a 5-month long bull pennant pattern. WULF daily candlestick chart (FINVIZ.com)WULF shares appear likely to increase from here so long as Bitcoin pricing maintains or increases from here. Further, TeraWulf has another potential catalyst from its nascent data center business, where a future hosting contract may be announced, or investors may simply begin to speculate upon it. At WULF’s current share price, the company has a market capitalization of almost exactly $1 billion. Many mutual and alternative fund instruments are restricted by their own covenants from buying securities based upon both the overall market value of the company and the actual stock price. In particular, a great many funds are restricted from purchasing stocks that have a market price below $5. As a result, there is far less institutional and news coverage of such low-priced equities. Similarly, many advisors cannot suggest equities below $5 to clients, as some compliance standards will consider them penny stocks. Risks The primary risk to TeraWulf is if Bitcoin were to sustain a significant decline. WULF and all Bitcoin miners will follow the underlying performance of Bitcoin, and likely with leverage. Other risks include the possibility of dilutive secondaries, which are incredibly common for Bitcoin miners, and the potential for excessive stock-based compensation. WULF’s recent history of making debt repayments appears to indicate a conservative use of available cash, and hopefully that they will be sensible issuers of shares. While dilution is always problematic for Bitcoin miners, it is considerably less concerning towards the underlying thesis than is the potential for Bitcoin to enter a bear market. For this reason, if Bitcoin were to decline more than 10% from present levels and not immediately bounce off of some supportive level around there, I would likely abandon any near term speculation upon Bitcoin miners. Conclusion I believe that the recent breakout in TeraWulf shares has the potential to continue. If WULF gets a catalyst in the form of either an increasing Bitcoin price or a meaningful AI-related data center, let alone both, I think it is possible and even likely that WULF shares will be revalued well above current levels. Further, if shares can advance above $5, new fund and institutional investments are probable, as is an influx of media coverage.
sekar nallalu Cryptocurrency,WULF,Zvi Bar TeraWulf Stock: Breakout Is Likely To Continue (NASDAQ:WULF)