Why Is BTBT Stock Dropping?

Crypto has had a landmark year in many ways, beginning with the approval and launch of bitcoin and ether ETFs. Institutional investors have made substantial investments in crypto, digital assets, and the surrounding infrastructure, so crypto has become a central topic in the political discourse of the election year.

All of the buzz has driven bitcoin up over 42.5% in the past 12 months. However, the stocks of bitcoin miners like Bit Digital (NASDAQ: BTBT) haven’t risen in accordance. In fact, BTBT is down 20% year-to-date.

Investors have been moving away from bitcoin mining stocks in large part because they aren’t bringing in enough revenue and so profitability has been hurt. The bitcoin halving, a tough regulatory environment, and dismal economic conditions have weighed on mining companies.

However, bitcoin mining businesses like Bit Digital are essentially power providers. While they were built to mine cryptocurrency, mining rigs can be redirected to power artificial intelligence and high-performance computing, which both have massive power consumption demands.

They are also highly lucrative markets, and Bit Digital has already begun its transformation to support both AI and HPC.

Why Is BTBT Stock Dropping?

BTBT stock is dropping because the cost of mining bitcoin has soared to the point that the profitability is reducing considerably.

The shift in business model has already made an impact. In the second quarter of 2024, Bit Digital had total revenue of $29 million, which was a 220% year-over-year increase. Q2 revenue was also 8.66% better than analysts had predicted.

The driving force behind the sales spike was the launch of the company’s HPC services, coupled with a higher bitcoin price.

Bit Digital earned $12.5 million in revenue from HPC operations, while bitcoin mining brought in $16.1 million in sales, an 80% year-over-year increase. The company had cash and equivalents of $61.4 million at the close of the second quarter.

Bit Digital also reported a net loss of $11.95 million, which was almost 400% worse than last year. However, diluted earnings per share of negative $0.09 still beat EPS estimates by 70%.

The company mined 244.2 bitcoins in the second quarter, which was a 23% decrease from last year. Bit Digital tapered off its mining activities due to a reduction in block rewards, an incentive for bitcoin miners, and increased mining difficulty. The company also stakes Ether, and Bit Digital earned 109.4 ETH in Q2.

While it was a successful quarter in many regards, the company still faces challenges ahead.

“Mining economics remain challenging, and in the absence of a material improvement in expected payback periods for mining equipment, it is unlikely that we will reach our active hash rate target of 6.0 EH/s by year-end 2024,” Bit Digital’s leadership wrote in the earnings release.

“From the onset of the year, we have been cautious in terms of exahash growth, preferring to wait for the post-halving mining environment before enacting material growth. In the interim, we will focus on high grading our existing fleet while reserving the right to make opportunistic growth purchases should the returns profile justify the expenditure.”

Will BTBT Stock Keep Going Up?

One such expenditure was the recent purchase of thousands of data center GPUs from Nvidia, which Bit Digital used to launch its AI operations. Shifting focus from bitcoin mining to AI and cloud-computing has become a common occurrence for bitcoin mining companies.

While many bitcoin miners viewed the switch as a supplement to their normal bitcoin mining operations, AI and HPC may well soon become those companies’ sole focus. Van Eck has estimated that shifting 20% of miners’ energy capacities to those sectors may generate as much as $37.6 billion by 2027.

Bit Digital has said its first AI contract has already generated $21.7 million in revenue in the first half of the year but it may take some time to ramp up AI operations. AI data centers are much more complex than bitcoin mining operations, and they have different infrastructure demands.

Still, Bit Digital believes the benefits outweigh the drawbacks.

“We continue to view the HPC business as the most attractive use of incremental growth capex in the current environment,” wrote Bit Digital’s Leadership. “The main bottleneck to date has been a lack of personnel and man hours to bring contracts to the finish line.”

BTBT Stock Analyst Ratings

Because the company is still in a transitional period, few Wall Street analysts have been willing to weigh in on BTBT. Those that did have been overwhelmingly bullish with all four analysts rating BTBT as a Buy.

The highest price target has the stock skyrocketing 96.7% to $6 over the next year while the average price target is $5.58 per share translates to an 83% increase from where the stock currently trades.

The lowest forecast has Bit Digital shares jumping 57.4% to $4.80 per share in the next 12 months.

Is BTBT Stock Undervalued?

Though only a few Wall Street analysts have weighed in on BTBT, the few that share their assessments believe that Bit Digital’s AI and HPC shift will pay off. The case for BTBT’s undervaluation is bolstered by the stock’s price-to-sales value of 3.8.

The stock looks inexpensive compared to its bitcoin mining competitors, such as Marathon Digital, which has a price-to-sale ratio of 6.8x, while Riot Platforms’ P/S is 5.8x. Bitfarms Limited notches in just higher than BTBT, trading at 3.85x sales.

Is BTBT Stock a Buy or Sell?

Bit Digital has been highly adaptable since its 2015 founding. In less than a decade the company has shifted from a peer-to-peer payments platform to a bitcoin miner to an HPC and AI energy provider.

The volatility in the company’s revenue has caused share price turbulence. BTBT was trading above $25 in 2021, and it has fallen 87.8% from that peak but AI and HPC offer more stable and lucrative markets that may well get Bit Digital back on its feet. However, it’s unclear how long it will take for the company to build the infrastructure to support wide-scale AI operations.

For investors who are looking for a cheap way to invest in a potential AI player, Bit Digital appears to be fairly inexpensive. It also has potential, but there is plenty of risk to go along with it.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.