Bitcoin mining fundamentals are getting progressively more difficult, considering the continued expansion in worldwide network hash rates.
That said, with over 70% gross mining margins, bitcoin break-even production costs of between $5,000-$16,000 (compared to bitcoin’s current spot price of ~$47,500), the profitability profile of industrial-scale bitcoin mining remains robust.
Each day brings with it the potential for ~$40 million in mining revenue, and until 2140 comes into view, there are still 2 million BTC left to mine.
"Thus," says Stifel analyst Suthan Sukumar, “we view miners as a compelling levered play on bitcoin that provides investors with direct exposure to the sector with upside optionality from continued scale expansion, strategic diversification, and potential consolidation as the industry matures.”
Sukumar favors miners which have a more “resilient growth outlook” on the mining revenue and profit front and which can withstand bitcoin’s famous volatility. Ones that are “well-capitalized, scaled miners with a funded path to significant near-term capacity expansion and focus on operational efficiencies,” are best positioned to succeed.
With this in mind, Sukumar has pinpointed two promising bitcoin mining stocks which fit that profile. We ran them through the TipRanks database to see what the rest of Wall Street’s analysts think about them; turns out, they are both rated as Strong Buys and projected to yield outsized returns in the year ahead. Let’s dig in.
First up, we have Hut 8, a Canadian bitcoin miner and one of the biggest industrial scale crypto mining enterprises in North America. Founded in 2017, HUT began the first stage of its self-owned mining operations in energy-rich Alberta, through a partnership with global blockchain technology company Bitfury. This offered Hut exclusive access to proprietary bitcoin mining hardware and operational support around the clock.
Hut 8’s lean operation consists of roughly 60 blockchain and data center experts. The company is also one of the mining industry’s most prominent bitcoin HODL’ers, boasting more than 6,200 bitcoin in its reserves.
HUT kicked off its self-mining operations with 18.7MW of power capacity in Drumheller, Alberta. Following expansions at the facility, in addition to a cumulative 67MW from another mining site in Medicine Hat, Alberta, HUT’s total power capacity swelled to almost 110MW. With development plans afoot in Northern Ontario, the stage is set for HUT’s total power capacity to almost double over the near term. At the same time, given the favorable power rates, the expansion will also significantly reduce overall direct mining costs. This all puts the company on track to expand operating capacity over the upcoming quarters from the present 2.5 EH/s to 4.6 EH/s, with management targeting 6.0 EH/s by the end of the year.
That the company is growing at a fast clip is easy to see given the huge growth spurt it has gone through over the past year. In the most recent financial report – for 4Q21 – revenue surged by 345.4% year-over-year to reach C$57.9 million.
In his coverage note on HUT, Sukumar is attracted to the promising growth profile while also noting the company is exploring other promising revenue generating opportunities.
“With a strong track record and healthy balance sheet from recent capital raises, we see the company well positioned to execute on its growth plan, allowing it to increase its operating scale and capacity with a more competitive cost profile in the coming quarters,” the analyst said. “We see additional near-term catalysts resulting from progress on the company's diversification plan. Specifically, these include leveraging its recently purchased data center assets and industry relationships to secure new emerging business opportunities in the high-performance computing and web3 space.”
Everything that HUT has going for it prompted Sukumar to rate the stock a Speculative Buy. The cherry on top? His $11 price target implies ~80% upside from current levels. (To watch Sukumar’s track record, click here)
4 other analysts have recently reviewed HUT’s prospects, and all are positive, making the consensus rating here a Strong Buy. The average price target is even more bullish than Sukumar will allow; at $12.30, the figure represents potential upside of 102% in the year ahead. (See HUT stock forecast on TipRanks)
The next company we’ll look at is another Canadian crypto miner. HIVE was the first miner to be publicly listed and has roots in GPU-based mining of Ethereum. But the company has since evolved, diversifying its mining endeavors to include bitcoin in 2020, since when the company has focused on expanding its operations.
Against the backdrop of last year’s favorable mining conditions, HIVE generated a gross mining margin profile of around ~75%, making it a leader amongst its peers. The company was able to aggressively invest in power capacity increases, new BTC rigs, and ETH rig improvements thanks to combining this with clever ETH selling and well-timed financial infusions.
The purpose of all the investments is for the total BTC equivalent hash rate to increase from the current 2.9 EH/s to 4.5 EH/s by this spring, based on the power capacity rising to 155MW. This will also bring the BTC/ETH mix nearer to 70/30.
The company is targeting further expansion. In the works is a 100MW site in a new facility located in low-cost crypto-friendly Texas, for which HIVE has signed a LOI with crypto mining hosting giant Compute North.
Shlisky sees HIVE in solid position thanks to its "unique combination of established scale, next-generation hardware, and low-cost, 100% renewable power.”
The analyst further writes, “The company has been building on its ethereum mining roots with a rapidly expanding bitcoin mining footprint through strategic expansions, which is driving an outlook for strong revenue growth and profitability. With a HODL strategy growing in prominence and a healthy balance sheet from recent capital raises, we see potential for the company to continue to scale aggressively yet responsibly as it prioritizes its peer-leading operational efficiency.”
Acknowledging the strength of the company’s forward plans, Shlisky rates HIVE shares a Speculative Buy, and his $3.75 price target suggests an upside of ~65% for the year ahead.
Once again, we are looking at a stock with a Strong Buy consensus rating, this time based on a unanimous 3 Buys. The $3.85 price target is a touch higher than Sukumar’s objective and set to generate returns of ~70% over the 12-month timeframe. (See Hive stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
