Key facts:
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The amalgamation of Bitcoin Mining and artificial intelligence would be bullish for Hut8.
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Hut8 is 88% away from its all-time high, reached in 2021.
Hut8, one of the leading Bitcoin mining companies, has caught the attention of some analysts who see an investment opportunity in its shares.
The bullish thesis on the mining company “is clear,” according to a study from financial company Stony Chambers: Hut8 has the best opportunity —according to this firm— to transform a significant part of its capacity into artificial intelligence data centers (IA).
“Mining is a tough business because no other industry is as perfectly competitive as it is,” the study says.
In a situation of perfect competition, according to basic economics, firms do not earn additional profits because costs and prices are tightly coupled.
This means that for Bitcoin miners operating on a large scale, it is difficult to maintain profit margins as they face many additional costs, such as those related to being listed on the stock exchange. These costs further reduce their already narrow profit margins.
Stony Chambers is not suggesting that publicly traded Bitcoin mining companies are bad investments. On the contrary, recommends looking for miners who are doing more than just mining BTC.
In this sense, companies in the sector of Bitcoin mining are diversifying into high-performance computing and AI. In this context, Hut8 is very well positioned for the transition into those areas.according to analysis by Stony Chambers.
Coatue’s recent $150 million investment is a clear sign that Hut8 has been “thoroughly evaluated” for its ability to become a leader in AI data centers, the financial analytics firm notes.
He agreement signed last June, contemplates the construction of a next-generation AI infrastructure platform. This investment seeks to accelerate the growth of the data center portfolio and will provide access to Coatue’s extensive network of companies and relationships in energy, data centers and artificial intelligence.
How can Bitcoin mining benefit from AI?
The potential benefit lies in the shared demand for energy. AI data centers, like Bitcoin mining centers, require enormous amounts of energy, which has led AI companies to partner with Bitcoin miners to use their facilities.
This synergy allows the existing infrastructure of Bitcoin mining companies to be leveraged, including their servers, networks, labor, and cooling systems, to focus them on AI data centers, benefiting both industries, explained CryptoNews in an article.
Industrial Bitcoin mining farm – Source: Lightfield Studios – stock.adobe.com.
Furthermore, it is crucial to consider that over 50% of Hut8’s market cap comes directly from its BTC holdings, and the company is using 700 MW to mine Bitcoin at very low costs.
This power capacity could also support AI, which represents an additional option for Hut8. Rising global liquidity is another factor that could boost the value of BTC, further benefiting the company, according to Stony Chambers.
The analysis highlights that Hut8 is preparing to capitalize on a very smart capital expenditurebacked by its strong financial position with over $500 million in BTC and $150 million in Coatue cash. As more investors understand the economic reality of this situation, the upside for Hut8 could be huge.
At the moment, Hut8 shares are trading at $9.0388% below its all-time high of $76 reached in 2021, as can be seen in the following chart. TradingView.
HUT8 Price. Source: TradingView.
This decline, combined with the growth outlook anticipated by Stony Chambers’ analysis, could represent an attractive buying opportunity for the shares at their current pricewith the potential to generate significant returns over the long term.
Risks and benefits for Hut8
Stony Chambers warns of the risks associated with a possible investment in Hut8. One of them is that the transition to high-performance computing could fail for a variety of reasons, including operational failures or a possible loss of interest in AI itself.
However, the union of the Cryptocurrency industry and companies dedicated to the development of artificial intelligence could add $20 trillion to global GDP by 2030according to estimates from digital asset manager Bitwise.
The firm believes that the growing market demand for artificial intelligence is not being accompanied by technological and structural development. This prevents companies dedicated to AI from having the necessary resources.
Furthermore, the price of BTC remains a critical factor; If BTC falls, it will negatively affect Hut8as 57% of its market capitalization depends on this asset. Another risk is the rapid increase in the network hash rate, which would increase competitiveness in the mining industry.
Overall, Stony Chambers rates Hut8 as a “strong buy,” noting that It is an undervalued company compared to other companies in the sector. In addition, it has a huge BTC treasury and a low extraction cost, which offers a considerable margin of security.
Hut8 is ranked sixth among publicly traded companies with the most BTC in their possession, according to data from Bitcoin Treasuries.
Top 10 publicly traded companies that own BTC. Source: Bitcoin Treasuries.
The conversion to high-performance computing and AI creates a favorable special situation, which also positions Hut8 as a data center Real Estate Investment Trust (REIT), even though it is not officially recognized as such.
What does a REIT have to do with Bitcoin mining? This industry requires a large amount of electrical power and specialized equipment to operate efficiently, as well as large physical spaces with access to cheap and stable energy.
This is where REITs come into play, since they can acquire or build facilities specially designed for mining Bitcoin and then lease them to mining companies, allowing them to earn stable income through rentals.
Stony Chambers concludes that “Hut8’s AI vertical could eventually generate enough revenue to cover all energy costs, allowing the company to keep almost all of the BTC it mines. This could justify a much higher price for its stock, possibly more than four times current BTC holdings.”
Clarification: This article is written for informational purposes only. It does not constitute financial advice or investment advice. Each investor is responsible for conducting their own research.
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