Summary TeraWulf's stock surged after Q4 earnings, bouncing off key support levels, indicating strong bullish sentiment despite a prior downtrend. The company’s HPC expansion, including a $1 billion Core42 agreement, suggests significant future revenue growth and transformation beyond Bitcoin mining. TeraWulf's fully financed expansion and projected profitability make it an attractive investment, despite dilution and high short interest risks. With supportive valuation metrics and positive momentum indicators, I upgrade TeraWulf from Buy to Strong Buy, expecting a sustained rally. Bitcoin miner TeraWulf ( WULF ) reported fourth quarter and full-year earnings on Friday, and the stock exploded higher on huge volume. That’s terrific, but if we zoom out, the stock was in a sustained downtrend, that saw it lose well over 60% of its value going into the report. The last time I covered TeraWulf, I said it was a Buy-rated stock at $7.35. The stock waffled a bit, then entered its downtrend after that, which is why we use stops to limit risk. Being wrong is okay; bag-holding is not. Now that we’ve got a fresh earnings report and a much lower share price, I feel compelled to upgrade TeraWulf from Buy to Strong Buy. Let’s dig in. Support held The key thing from the reaction to the earnings report is that support was held when it needed to be. That level was a zone around $3.50 to $3.75, and the stock bounced right off of that level on Friday. StockCharts The candle is beautiful as the stock opened at the low and rallied all day. Volume was huge , being the biggest day in the company’s history in terms of volume. I can’t think of a bigger statement from the bulls than that, and it should be ignored at one’s own peril. The momentum indicators aren’t supportive of a sustained move yet, as they’re bouncing off oversold levels. But price support around $3.50 or so is the critical thing to hold here, and I like the stock above that. On the weekly chart, I do think we have support for a larger up move if the channel holds. StockCharts That channel has been in place for about two years, and it’s held a bunch of times in the past. That doesn’t guarantee that it holds, but it sure looks like we have a good chance. I will also say that unlike the daily chart, the weekly momentum indicators are indeed supportive of a larger move higher. The PPO is testing the centerline, and the RSI is testing 40. Should those levels hold, we could be in for a very large move in TeraWulf to the upside. High-performance computing drives the future TeraWulf’s earnings showed a small loss for the year, as expected. But for the forward look, it’s hard not to be bullish here. Seeking Alpha As we can see, while doubling revenue is obviously unsustainable, we are looking at stratospheric growth rates in the coming years, building upon 2024's success. Sales are set to nearly double again in 2025, and again in 2026 before leveling off. Importantly, the analyst community is now looking for a small profit this year of 18 cents. If TeraWulf gets anywhere near that level, buying at today’s price is likely to have proven a bargain. For the quarter, operating costs were up sharply, but with revenue doubling, that’s expected. The company is heavily investing in its HPC unit expansion, but also for its mining operations. Stock-based compensation is driving higher SG&A costs as well. Investor presentation The company’s hash rate ended the year at just under 10 EH/s, which was roughly double the year-ago period. However, it’s still one of the smaller miners, so scale is not at play here. The good news is that the company’s mining cost was ~$46k per coin, meaning it’s mining profitably with prices nearly double that level. Capacity is expected to be something like 13 EH/s in the near future with rig upgrades, but we’re still talking lower scale when the big boys are cresting 50 EH/s. On the HPC side, the company executed a 10-year, 72.5 MW data center lease agreement with Core42, which is worth more than $1 billion in total revenue. That’s huge for a company the size of TeraWulf, and it’s indicative of the potential here. Investor presentation The company’s Lake Mariner site is secured for capacity of up to 750MW, and the new Cayuga site should add something like 150MW by next year. Management thinks it can deploy something like 100MW to 150MW of capacity annually over the next three years. Indeed, the goal is to exit 2026 with 200MW to 250MW of revenue-generating HPC capacity. This highlights the early stages of this transformation for TeraWulf, so if you’re bullish on the stock, it means you’re bullish on the HPC transformation and not necessarily Bitcoin mining. Revenue from the Core42 agreement should add $100 million in annual revenue for the next decade, and additional contracts are expected to add $140 million to $210 million in annual revenue. After Q4 earnings and an update on the HPC strategy, I think the market’s reaction to buy the low and just keep adding was exactly correct, and I fully expect this rally to be sustained until further notice. Other considerations Any small company that’s undergoing rapid expansion requires a lot of capital to do so. One of the things I like about TeraWulf is that its expansion is already fully financed. Investor presentation TeraWulf ended the year with almost $300 million in cash on hand, and as we can see from the above, it expects to end the year with about the same amount. Now, part of the cost of this is a much higher share count over time. TeraWulf ended the year with 391 million shares outstanding, which is up from 100 million three years ago. Dilution is not something I’m a fan of, particularly on this kind of scale. But it’s priced in at this point, and to be fair, as HPC capacity comes online and generates meaningful revenue, we should see the need to issue more equity decline over time. We’ll see, but point being, this is something investors should keep a keen eye on. From a valuation perspective, we do have projected earnings for this year, but not much in terms of history to compare it to. However, we can compare enterprise value to revenue, which is below. TIKR The number today is 5.1X, which is about the average for the past couple of years, but is well off the high of 17X. I’d argue that with the company’s margins providing sustainable profits starting this year, the EV/S revenue should be higher than it’s been in prior years on the grounds that each dollar of revenue is worth more. If that were to occur, we could see the multiple move much higher over time. From a valuation perspective, I really think TeraWulf looks terrific and supportive of the bulls at $4 per share. One more consideration is that short interest is 20% of the float, which is huge. It means sentiment on the stock is massively negative, and if there’s a big rally, the shorts may decide to take profits and move on. From a risk perspective, that short interest will almost certainly drive high levels of volatility. If that’s not for you, this stock isn’t for you. The other risk is that the HPC build-out doesn’t go as planned. That’s a big risk, of course, which is why the stock is $4. The evidence suggests the odds are pretty good that the build-out goes okay on the evidence of the Core42 signing and capacity build-out, but it's certainly the principal risk here. I think the odds are in favor of the bulls, so I’m going with a Strong Buy off of earnings.
