HIVE Digital: Resilient Miner, But Expect Short-Term Volatility (Rating Downgrade)

Summary HIVE Digital Technologies’ share price surged to $5.8 following the approval of spot Bitcoin ETF, but since then the price has retrenched to around $4. Despite the Bitcoin halving event, HIVE’s mining operations remain resilient with a focus on efficiency and cost reduction. Mining difficulty has come down but should come down further to create an upside in digital asset prices. There are also election-related risks on the horizon that could induce volatility to the stock, explaining my Hold position. Still, opportunities for growth in the HPC (high-performance computing) sector, potential revenue increase, and long-term potential for investors. Since I last covered Hive Digital Technologies ( HIVE ) in my bullish piece in December last year, its share price surged by 17% to $5.8 in a market frenzy following regulators approving several Bitcoin ( BTC-USD ). After several ups and downs, it now trades around $4 as charted below. Data by YCharts Nearly seven months later, this thesis aims to provide an update on the crypto miner’s production and financial performance in the aftermath of the uncertainty-inducing Bitcoin halving event and assess whether its diversification into HPC or high-performance computing remains on track. At the same time, by factoring both opportunities related to the mining landscape and emerging uncertainties on the political front, I emphasize the need for caution. I start by providing an update on the way HIVE has navigated through the transition to the post-halving event which saw miners being rewarded only 3.125 BTC for each block added to the Bitcoin blockchain compared to 6.250 BTC previously. Resilient Mining Operations and More Efficient Than Peers The immediate effect of halving was the number of Bitcoins produced per day dropping from above seven in March to four in June as shown in the table below. To this end, April constituted more of a transition month as the halving occurred on the 19th which makes it essential to assess production both before and after. The result shows that due to lower mining rewards, monthly production dropped to 119 from 224. Table built using data from (seekingalpha.com) Despite this 47% drop, the number of Bitcoins HODLed or produced but not sold, kept increasing from 2,287 in March to 2,496 in June, with the number having grown to 2,503 on July 7. This shows that the company did not have to dispose of its treasury to finance operating costs as other miners have been doing in the wake of the halving. One of the reasons is that it has been able to control operating expenses, namely by keeping administrative costs as a percentage of revenues lower compared to others as charted below. In this case, while the other miners like Marathon Digital ( MARA ) and Riot Blockchain ( RIOT ) have also drastically cut costs, HIVE, as seen in the blue chart has seen better success in cost control. charts built using data from (www.seekingalpha.com) Pursuing further, one of the ways to reduce costs is to continuously upgrade the machinery with those bearing the best energy efficiency so that less power is used for production. Thus, as per the President and CEO, 2,150 S21 Pro miners from supplier Bitmain are expected to be installed by the end of July to increase production capacity to 5.5 EH/s . This represents a 22% increase compared to the March capacity (as per the above table) and means that henceforth, monthly production should continue to increase to exceed the 119 BTCs produced in June. Consequently, while suffering from a drop in output like other miners, HIVE has demonstrated resiliency in the way it has tackled Bitcoin halving, but, going forward, from 900 Bitcoins , the total daily Bitcoin production will drop to 450 making efficiency a very important metric to watch out for. For this purpose, the Antminer S21 Pro’s advantage is while it boasts a higher productive capacity also boasts a lower energy consumption of 15.0 J/TH compared to 17.5 J/TH for the currently used Antminer S21. This implies that by consuming less energy, it also lowers the cost per bitcoin produced, thereby enhancing its competitive position in the mining industry. Opportunities Due to Lower Mining Difficulty but Volatility Risks have Emerged The company could also benefit from a reduction in mining difficulty from 88 to 79.5 as shown in the chart below. This is due to a decrease in miners participating in (or adding blocks to) the network. This is probably the result of other miners reducing output as operations are no longer financially viable or some are going out of business altogether if financially not strong enough to digest the halving of mining rewards. For investors, this remains a highly competitive industry where miners are competing to be the first to add blocks. Data by YCharts Worst, troubled miners have been selling their bitcoin reserves to make up for revenue shortfalls thereby causing supply to outstrip demand which is one of the reasons why digital assets declined by about 4% in HIVE’s fiscal first quarter of 2025 (FQ1-2025) which ended in June, compared to a 54% surge in FQ4-2024 lasting from January to March. This means that if HIVE does not dispose of more of its HODLed coins, it should suffer from a QoQ decrease in revenues in FQ1-2025. As a result, it could miss revenue expectations when financial results are announced around August 12. looking at the second half of the year, the overall hashrate or total computing power of the Bitcoin network has gone slightly down from its April peak as per the chart below, indicating a decrease in mining activity. Data by YCharts Now, this could be an indication of miners’ capitulation or not participating in the mining process to a point where there starts to be a reduction in supply, which would, in turn, mean higher prices as long as demand is sustained. In this connection, according to the blockchain analytics platform CryptoQuant , there are signs of capitulation based on a 7.7% drop in the hash rate. However, the latest 10% surge in the price of Bitcoin during the last five days could be related to two other events. One is the shooting of President Trump as he has expressed support for the cryptocurrency. Second, the U.S. Central Bank has recently shown more signs that it will likely turn dovish as to monetary policy in September after weaker inflation numbers, which augurs well for miners envisaging tapping the debt markets. As a result, HIVE also saw its stock surge to $4.05 but, at the time of writing had retrenched to about $4.01, and it could fall further if there are no clear signals of a sustained reduction in crypto supply. Also, bearing in mind, that a potential Republican administration could impose a 60% to 100% tariff on goods imported from China where the Antminer’s supplier Bitmain is headquartered , miners could have to spend more capex for efficiency-led equipment renewals. To provide a rough estimate of the effect of these tariffs, if 60% were applied to the capital expenses of $80 million for FY-2024, this would amount to $128 million, or more than the annual revenues . Furthermore, as shown below, continuously upgrading mining rigs to become more efficient has also resulted in a surge in depreciation costs which in turn impacts profitability, which means that any additional cost element can force the miner to sell more coins to generate sufficient revenues to support investments. Data by YCharts In these circumstances, one should expect volatility over the next few months. To further justify my cautious outlook, the company is trading at a forward P/S of 4.56x compared to 3.06x in December last year (chart below), or an increase of nearly 50% while its price has appreciated by only 2%, implying investors are highly optimistic about the future revenue growth. This is not aligned with analysts’ revenue consensus estimates for FQ1-2025 of $24.32 million which would represent only 3.18% YoY growth. Worst, for FY-2025, the estimated $104.6 million would represent an 8.6% YoY decline. Data by YCharts However, I am optimistic over the long term. Long-term Potential as an Efficient Miner Diversifying into HPC The reason is going purely by the sales metric would ignore the value of the miner’s treasury of 2,503 coins which is worth $162.7 million based on a BTC valued at $65K. Assuming that it just unloads $20 million worth of its HODLed BTCs, this could increase the above revenue estimate to $124.6 million. Compared to the $114.5 million obtained in FY-2024, this would represent an 8.9% YoY growth. Moreover, the company’s diversification strategy into HPC, initially by using some of its existing A40 GPUs which were initially used for Ethereum mining, and then through the purchasing of newer H100s from Nvidia, is working. Hence, from only generating $229K of trial run-related revenues in the fourth quarter of last year as shown in the table below, this figure has been multiplied by over six times in FQ4-2024 to $1.81 million. This still represents a fraction of crypto sales but HPC’s advantage is that it is in high demand thereby representing higher margins than crypto. To this end, HIVE aims to attain over $100 million in revenue with very high operating margins. SEC Filing (seekingalpha.com) In conclusion, this thesis has shown that HIVE’s mining operations have been resilient to the halving event. Also, with Bitcoin’s network hashrate no longer at its April peak, mining difficulty has declined slightly by 9.7% but is still up by more than 50% from one year ago. Learning from May 2020 Bitcoin halving, it was not until difficulty dropped by around 14% that there was an upside in BTC’s value as shown below. Data by YCharts This is not the case today, and, on the contrary, there are now election-related volatility risks. To be fair, with the elections still about four months away, there is no certainty that President Trump will win a second term and Democrats could retain the White House. Still, risk-averse investors would want to avoid investing in such an environment of uncertainty and prefer to wait for more clarity on foreign trade policy. Finally, for shareholders, with its HODLed coins comfortably exceeding the debt of $30.6 million , and its diversification into HPC translating into more sales in a high-demand marketplace, HIVE should play an important role as a hosting service provider for AI workloads from next year.

Source: Seeking Alpha