Summary Cipher Mining has outperformed the S&P 500 and Bitcoin in the past year, presenting a buying opportunity. The company is expanding its mining fleet and efficiency, with plans to reach 25.1 EH/s by 2025. Revenue growth, profitability, and stable balance sheet indicate Cipher Mining is undervalued and a good long-term investment. Operator of bitcoin mining logistics, Cipher Mining ( CIFR ) has gained 35.06% (YoY) outpacing the S&P500 at 25.19% (YoY). The stock’s rise was almost half the progress made by Bitcoin (BTC) which shot 89.26% over the past year. Seeking Alpha I believe CIFR presents a good buying opportunity while trading under $5 after announcing the expansion of its mining fleet/ efficiency and its growth-driven projects planned into 2025. Cipher Mining's Overview From an individual perspective, the success of CIFR will be directly proportional to the value of Bitcoin seeing that Cipher operates mining data centers for this crypto. That said, Cipher holds a significant amount of BTC and is growing its reserves or investment profile by the day. As of June 2024, CIFR indicated that it had 2,209 BTC having produced 176 BTC in June alone. In 2022, I wrote on MicroStrategy's ( MSTR ) BTC tracking status as an avenue for the company's success. Since then, MSTR has grown 161.10% with a market value of $15.22 billion as of April 2024. In terms of size and value, CIFR is nowhere near MSTR (which holds at least 214,245 BTC), however, I love the fact that CIFR always has more BTC left every month after clearing its expenses. Cipher Mining June 2024 Update In the Fiscal year 2022, CIFR mined 515 and 377 bitcoins in Q4 2022 (an average of 126 BTC per month). In my view, CIFR's management is practicing considerable prudence in stabilizing its expenses on a monthly and quarterly basis. In June 2024 alone, CIFR separated 73 BTC to cover its operational costs (and save) after mining 176 BTC and selling 103 BTC. In simple terms, CIFR always has some reserve BTC (every month) after paying off its expenses. Expansion Plan is taking shape Further, Cipher’s business mainly involves the development and operation of data centers for mining BTC. The expansion of Bitcoin's critical infrastructure becomes the most vital mission of the company. The number of miners operated by Cipher by February 2023 stood at 58,500 (both direct and indirect) going at a total hashrate of 6.1 EH/s and deploying about 203 MW of power. At the time, the company (and to date) Cipher Mining had 4 data centers or facilities positioned in Texas, i.e. Odessa and Alborz facilities, which have an expansion potential of 165 MW each while Bear and Chief centers have an average expansion potential of about 135 MW. With this in mind, we need to consider the expansion agenda taking shape within CIFR’s administration. While releasing its Q1 2024 results, CIFR stated , and I quote, “ We continue to invest heavily in our expansion, and the early stages of construction at our new Black Pearl data center are well underway. We’ve already cleared and leveled over 50 acres, and we will start laying concrete foundations this month. Because of this progress, and our strong financial position, we have decided to accelerate our plans and build the entire 300 MW data center in 2025. We expect to be at ~9.3 EH/s by the end of Q3 2024, and at least ~25.1 EH/s by the end of 2025.” As stated above, Cipher Mining is now developing the Black Pearl facility- the 5th data center, with the highest expansion potential of 300 MW (within its structures). Other than that, we will see a capacity expansion of the (self-mining) hash rate from the range of 7.7 EH/s- 9.3 EH/s (by Q3 2024) to 25.1 EH/s by 2025. The company had earlier indicated that the Black Pearl facility is expected to be fully energized in 2025 with construction already ongoing. For the Chief and Bear (joint-venture) facilities, Cipher intends to boost the capacity by 30 MW, which will see the self-mining hash rate jump by 1.25 EH/s. I expect the full energization of the facilities by H2 2024. Also, Cipher has increased its mining rigs by 28.21% (YoY) since 2023 from 58,500 to 75,000 showing consistency and enhanced production. I also believe the company will meet its hash rate growth guidance of 40% before the end of 2024. Revenue Growth CIFR’s Q1 2024 revenue stood at $48.1 million, a growth of 119.63% (YoY) from $21.9 million recorded in Q1 2023. CIFR has been strengthening its balance sheet over the years since it posted a paltry $3 million in the quarter ending in December 2022. I am also impressed by the stable profitability status which rose 141.3% (YoY) to $33.3 million and a net income of $39.9 million, an increase of 256.25% (YoY). Seeking Alpha I have also seen that Cipher Mining has been able to leverage the monthly upswing of Bitcoin prices to grow its profitability. In April 2024, it used the BTC’s month-end price estimate of $60,171 to re-sell its power, which also increased to $67,667 in May 2024. The aspect of reselling power helped the company to maintain its revenue despite the impact of Bitcoin halving towards May 2024, which contributed to slowing BTC prices by July 2024. As stated, Cipher has obtained contracts to re-sell power where it offers low-fixed competitive prices and may be positioned to gain with positive changes in the market. This initiative will help the company grow its income in the future. I have also looked at Iris Energy ( IREN ) which like Cipher Mining also has its data centers with its bitcoin farming process using renewable power. In its business update at the beginning of July 2024, IREN indicated that it was focusing on stimulating its monetization programs with “build-to-suit data centers.” I believe the company will actualize its “1,400 MW West Texas project” since it has $425.3 million” in cash, ready for deployment. Risk While Cipher Mining is trading in a profitable territory, its success is tied to the value or price of Bitcoin. A decrease in this value will affect the company's earnings. Cipher Mining uses end-month prices of bitcoin to also determine its power sales, which have decreased 6.35% (month-on-month). Valuation For Cipher Mining, I will use the price-to-book ratio since the company has recorded positive earnings (from its assets) with a positive trajectory pegged on the price of bitcoin. CIFR’s P/B (TTM) ratio stands at 2.23 against the industry average of 3.14 (a difference of -28.98%). The company's total debt is stable at $20.95 million against a cash reserve of $88.68 million, proving that it can pay it off and still invest in capital expenses. Overall, the P/B metric indicates the company is slightly undervalued, and we may see an increase in the long term. Bottom Line My takeaway is that Cipher Mining is a buy since its strategic infrastructural expansion pegged on fleet boost and efficiency will work to grow the company's earnings in the long term. The firm has been augmenting its bitcoin reserves in the past year, and it has maintained a stable balance even after paying its operating costs. CIFR has also managed to maintain a negative net-debt balance (lower than its cash reserves) showing its financial stability.
