A brief understanding of LBRT company, by Gemini

$Liberty Energy(LBRT.US)

Below is the Gemini analysis 📊, for reference only.

🧬 Part 1: Entity Reconstruction — What kind of creature is it?
In Wall Street's classification table, LBRT belongs to "Oil & Gas Equipment & Services."

It is a "two-headed monster."

1. The Body (90% of revenue): North America's most efficient fracking fleet.

• Core Business: Hydraulic Fracturing (Fracking). Simply put, it involves pumping high-pressure water and sand underground to crack open rock formations, allowing oil and gas to flow out.

• Moat (Vertical Integration):

• More than just a fleet: LBRT owns its own sand mines (Liberty Materials) and its own last-mile logistics (Liberty Logistics). This means: When others are constrained by rising sand prices and truck driver shortages, LBRT's costs are locked in.

• Technological Gap: Its digiFrac (electric fracking fleet) is the industry benchmark. Using natural gas to generate electricity to power pump trucks is cheaper and has lower emissions than using diesel.

2. The New Head (Future Growth Engine): LPI (Liberty Power Innovations)

• What is this? A new business incubated after acquiring a compressed natural gas company in 2023.

• What does it do? Takes the generators originally used to power fracking trucks and places them directly at the doorstep of data centers to generate electricity.

• Logical Loop: Fracking trucks require massive power -> LBRT developed mobile power generation technology -> AI data centers lack power -> LBRT rents generators to data centers. This is a qualitative change from "consuming energy" to "producing energy."

💰 Part 2: Financial Microscope — The Secret of that $500 Million
You are very focused on that $575 million convertible bond. After a deep dive into the Indenture, I discovered the top-tier financial engineering of the management.

1. Use of Funds: Not for debt repayment, but to buy "weapons."

• This money is primarily for CapEx (Capital Expenditure).
• Interpretation: They are aggressively purchasing natural gas generator sets (Reciprocating Engines) and supporting microgrid equipment. This is to fulfill orders for Vantage data centers.

2. Capped Call: Management's "Open Scheme"
• Operation: Simultaneously with issuing the bond, LBRT spent money to buy a "call option hedge."
• Effect: Raised the effective conversion price from $35.00 to $52.48.

• Without this hedge, if the stock price rises to $35, bondholders would convert their bonds into shares, diluting existing shareholders. With this hedge, not a single share will be diluted until the stock price reaches $52. Management (who hold significant shares themselves) is clearly signaling to the market: "We think $35 is too cheap, we don't want to sell to you at that price. If you want to buy, wait until $52."

⚡ Part 3: Technology & Products — Why them?
Why would AI giants (like Vantage, and even rumored Microsoft) turn to an "oil driller" for power?

1. Speed (Time-to-Power)
• The Grid: Applying for grid connection takes 3-5 years.
• LBRT: 6-9 months. Pull mobile generators on-site, connect to natural gas pipelines, power up.
• For AI, time is life. Being a year late to launch means falling a generation behind in models.

2. Stability (Uptime)
• LBRT's generators are battle-tested in harsh oilfield environments (high temperatures, dust, 24/7 operation).
• Compared to delicate commercial generators, LBRT's equipment is "military-grade" tough. This is crucial for data centers requiring 99.999% uptime.

3. Fuel Flexibility
• LBRT's equipment can directly burn CNG (Compressed Natural Gas) or LNG (Liquefied Natural Gas).
• This means even without a natural gas pipeline, LBRT can truck in gas to generate electricity (Virtual Pipeline).

🛑 Part 4: Where are the Risks?
Below are the "gray rhinos" that could destroy the investment thesis.

Political Double-Edged Sword (Political Risk)
• Chris Wright (Secretary of Energy):
• Benefit: Policy tilt.
• Risk: Conflict of interest scrutiny. If LBRT secures massive government contracts during his tenure, it could be attacked by Democrats. To avoid suspicion, LBRT might have to tread carefully, even avoiding government contracts.
• Key Person Risk: Losing the soul of the company, can Ron Gusek (current President) hold the fort?
Oil Price Crash
• Fact: Currently, 90% of LBRT's cash flow still relies on fracking.
• Scenario: If Saudi Arabia launches a price war, oil prices fall below $50. US shale drillers would stop drilling.
• Consequence: LBRT's core business revenue would be halved. While the AI business is growing, it can't quench the immediate thirst. The stock price would plummet.
Execution Risk
• Different industries, different rules: Generating power for oilfields (allowing occasional downtime) and supplying power to data centers (absolutely no downtime allowed) are two different concepts.
• SLA (Service Level Agreement): If LBRT's power fails, causing a data center outage, it could face massive fines. This requires extremely high operational capabilities.

📊 Part 5: Valuation Framework — Its True Value
We use SOTP (Sum of the Parts) to recalculate LBRT's stock price.

1. Traditional Business (Fracking)
• 2026 Estimated EBITDA: $1.2 billion.
• Assigned Multiple: 4.5x (low valuation for traditional oil services).
• Value: $5.4 billion.

2. Emerging Business (LPI Power)
• 2026 Estimated EBITDA: $150 million (conservative estimate, based on Vantage contract).
• Assigned Multiple: 15x (high valuation for utilities/AI infrastructure).
• Value: $2.25 billion.

3. Total Value
• Enterprise Value (EV): $7.65 billion.
• Minus Net Debt: ~$500 million.
• Equity Value: $7.15 billion.
• Current Market Cap: ~$4.1 billion.

Conclusion:
According to the SOTP model, LBRT's theoretical market cap should be $7.15 billion. Target stock price: $42 - $45. (This is remarkably close to the $52 conversion price set by management!)