New Price Target for TeraWulf After $1.8 Billion Google Deal
The crypto mining firm saw a surge after news of its Big Tech partnership surfaced and I've got a trade idea.
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Shares of TeraWulf WULF ran 59.5% on Thursday in response to news that Alphabet GOOGL was taking an 8% stake in the company.
Sarge, isn't Terawulf a cryptocurrency mining operation? Yes, but that said, the firm is transitioning into something bigger and potentially far more consequential than that. The firm has pivoted toward providing infrastructure to the hyperscalers with a focus on AI-related workloads and high-end computing. In short, the firm is likely trying to position itself as a competitor to CoreWeave CRWV.
The news is that Terawulf has come to two 10-year agreements with Fluidstack to provide high-performance computing (HPC) clusters to large cloud providers. HPCs are designed to handle large quantities of data to make complex calculations that ordinary computers cannot make efficiently. The agreements total $3.7 billion in contract revenue and bear two five-year extension options that could increase the contract revenue to an impressive $8.7 billion.
Alphabet's Google has agreed to provide funding of $1.8 billion to help finance this project. In return, Alphabet received warrants to acquire roughly 41 million shares of TeraWulf that would amount to an 8% stake when exercised. TeraWulf CEO Paul Prager commented, "This transaction underscores Lake Mariner's (TeraWulf's western New York State campus) status as a premier hyperscale-ready campus and further accelerates our strategic expansion into high-performance compute."
The firm's CTO, Nazar Khan added, "With dual 345 kV transmission lines, closed-loop water cooling, and ultra-low-latency fiber connectivity, this campus is purpose-built for today's most demanding AI workloads,"
Trading
About 22% of TeraWulf's float is held in short positions which causes something of a squeeze in response to this news. I come into Friday with a smallish long position in the equity and a long position in $7 puts that expire on Friday night that I bought for a song just in case the market pulls this rug while I'm not looking.
Readers will note that WULF broke out from an Andrews' pitchfork model on Thursday that had held the stock's upward trend since early April. Currently, in response to Thursday's spike, relative strength has gone parabolic while the daily MACD has basically done the same.
More importantly, the stock is feeling around for support at the upper trendline of this model after that breakout and the 50-day SMA is poised to overtake the 200-day SMA. That might provoke a second leg of this squeeze. At least that's why I'm hanging around.
With that upper trendline as my pivot, my target price is around $9.50. This is a trade, not an investment, and I expect to be flat the name by the closing bell should short-term traders take profits en masse on Friday.
At the time of publication, Guilfoyle was long WULF equity and put options.
