On Friday, H.C. Wainwright maintained a Buy rating and a $13.50 stock price target for Hut 8 Mining Corp. (NASDAQ:HUT), following the company's announcement of a significant new hosting agreement with Bitmain. The deal involves the deployment of up to 15 EH/s of Bitmain's next-generation ASIC miner, the U3S21EXPH, at Hut 8's latest 205 MW site in the Texas Panhandle, with a scheduled start in the second quarter of 2025.
The U3S21EXPH is a pioneering ASIC miner from Bitmain that utilizes direct liquid-to-chip cooling and boasts up to three times the computing power of Bitmain's previous air-cooled model. This increase in efficiency is expected to significantly enhance Hut 8's mining capabilities. To accommodate the new technology, Hut 8 has developed a custom BTC mining data center design that supports approximately 180 kW per rack, maximizing the potential of Bitmain's advanced rigs.
H.C. Wainwright's analysis suggests that the hosting contract with Bitmain could generate annualized revenues of approximately $125 million for Hut 8. This projection assumes a fixed fee of $0.075 per kWh from Bitmain and a 95% uptime, resulting in an estimated gross margin of around 57%, based on Hut 8's power cost of $0.032 per kWh in the second quarter of 2024.
The agreement also provides Hut 8 with an option to purchase all 15 EH/s of the mining rigs within six months of their energization at a fixed price of about $21 per terahash, a notable discount to the current market prices. To secure this option, Hut 8 has paid a $30 million deposit.
Despite the positive developments and the potential for increased revenue, the firm noted that Hut 8's stock performance on the previous day, with a 3.7% rise, was primarily influenced by a 4.5% increase in Bitcoin prices rather than the announcement of the deal itself. H.C. Wainwright expressed expectations for a more favorable market reaction to what they consider a highly attractive and strategic agreement. The firm reiterated its Buy rating and $13.50 price target for Hut 8 Mining Corp.
In other recent news, Hut 8 Mining Corp. disclosed its Q2 2024 financial results, highlighting a notable 72% year-over-year revenue increase to $35.2 million. However, the company also reported a significant net loss of $71.9 million, a stark contrast to the $1.7 million loss from the previous year.
Hut 8's adjusted EBITDA also showed a loss of $57.5 million, a decrease from the prior year's $14.8 million loss. Despite these financial challenges, the company is aggressively advancing its gigawatt-scale development pipeline and is in discussions for a large-scale partnership in Texas, which could power up to 205 megawatts of Nvidia (NASDAQ:NVDA) Blackwell GPUs or 16.5 exahash of next-generation ASIC miners.
Hut 8 is also exploring AI compute opportunities and plans to upgrade its ASIC fleet. The company ended the quarter with substantial cash and Bitcoin holdings on its balance sheet. These are the recent developments for Hut 8 Mining Corp.
InvestingPro Insights
In light of the recent strategic developments for Hut 8 Mining Corp., InvestingPro data provides a clearer picture of the company's financial metrics. With a market capitalization of $1.04 billion, Hut 8 trades at an earnings multiple of 4.9, which is notably low, suggesting that the stock might be undervalued relative to its earnings. This is further supported by a P/E ratio that has adjusted to 4.76 for the last twelve months as of Q2 2024. The company's revenue growth has been positive, with a 7% increase over the last twelve months leading up to Q2 2024, and a substantial quarterly revenue growth of 261.59% for Q2 2024.
However, it is important to consider the InvestingPro Tips that highlight some challenges. Analysts have revised their earnings expectations downwards for the upcoming period, and they do not anticipate the company will be profitable this year. Moreover, the stock generally trades with high price volatility, which could be a concern for risk-averse investors. Despite these challenges, Hut 8 has been profitable over the last twelve months and does not pay a dividend, which could indicate a reinvestment of earnings back into the company's growth initiatives.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available for Hut 8 Mining Corp. at https://www.investing.com/pro/HUT, which could provide further insights into the company's valuation and performance.
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