Riot’s Q1 Leaves Investors Wanting For More

Summary Riot Platforms’ Q1 report showed revenue doubling year-over-year, but rising costs and weak technical indicators keep the stock in a long downtrend. The stock’s correlation to Bitcoin is weak, making it an unreliable proxy for Bitcoin exposure; better alternatives exist for Bitcoin exposure. Riot’s future hinges on its AI/HPC data center project, but Wall Street remains skeptical, reflected in the stock’s low valuation. With high short interest and no strong catalysts for upside, Riot is a hold; its Bitcoin treasury story isn’t driving share prices higher. Bitcoin miner Riot Platforms ( RIOT ) reported first quarter earnings on Thursday night, and the stock’s reaction has been pretty muted thus far. The stock has, quite interestingly, somewhat decoupled from the price of Bitcoin itself. That’s curious given the company’s business is nearly wholly reliant upon farming and holding Bitcoin. And given this, it appears the Q1 report is not enough to pull Riot out of the long, painful downtrend it’s been in. Let’s dig in. Will support hold? That’s the key question here, as the stock is just under $8 as of this writing. We can see extremely consequential support in the area of ~$6.35, which was the low from last September, and then again in April of 2025 (twice). That’s the line in the sand, and I think if you’re interested in Riot, you can trade against that level. The nearer it gets to that price, the more attractive it is. It’s also a great area to place stop losses in the event you’re wrong. StockCharts From a purely technical perspective, there really isn’t much to like here. We have a very clear downtrend, the moving averages are moving lower, and price is below the declining 50-day SMA. The RSI hasn’t seen 60 in months, and the PPO is still firmly in negative territory. The momentum picture has been improving off of really awful levels, but not so much that it looks like accumulation is taking place. Things that would imply accumulation is occurring would be the RSI staying above 60 for at least a few trading days, and the PPO staying above the centerline for at least a few days. We’d likely see the RSI crest 60 before the PPO going positive, so it’s something to watch for. We don’t have those yet, so I don’t really like the chart here. As I mentioned above, if you’re buying Riot for exposure to Bitcoin, the below may disappoint you. I’ve plotted the 20-day rolling correlation of Riot and Bitcoin, and we can see it’s only 0.66 today. StockCharts But that’s not unusual, and we have even seen negative readings at times. That means that over any given one-month trading period, Riot and Bitcoin have in the past become completely uncorrelated. The conclusion we can draw from this is that one should not buy Riot for exposure to Bitcoin prices. If that’s the reason you’re interested in the stock, I’d look elsewhere as the relationship here is loose. Another way to view this is that Riot’s price relative to the price of Bitcoin has just continuously declined over the years. This is a five-year chart of Riot’s price relative to Bitcoin. Riot receiving a higher valuation relative to Bitcoin makes this line go up, and the inverse makes it go down. StockCharts Riot’s valuation on this basis has never been lower than it is today (give or take), so again, Riot’s exposure to Bitcoin price upside has been hard to come by. That’s counterintuitive given the company holds a huge amount of Bitcoin, but we cannot argue with facts. With a weak technical picture, let’s now turn our attention to the fundamentals of the earnings report. Rising Bitcoin prices, but rising costs, too Riot’s Q1 showed revenue of $161 million, which was just over double what it was a year ago. That was also very slightly ahead of estimates. The company’s loss came in at $296 million for the quarter, but Bitcoin miners and holders have accounting rules that cause massive swings in “earnings” from the value of their holdings. The company produced 1,530 Bitcoin during the quarter, which was up from 1,364 in the year-ago period. The average cost to mine, excluding depreciation, was $43,808 per coin, which was almost double what it was a year ago. Investor presentation Riot ended the quarter with just over 19k Bitcoin, worth about $1.9 billion at today’s price. With Riot’s market cap at $2.7 billion, the Bitcoin stash is obviously of massive importance. In theory, if Bitcoin rises over time, Riot becomes more valuable as a company. However, keep in mind that in reality, Riot’s correlation to the price of Bitcoin is loose at best, so this bull case may not play out. That’s a truly significant risk to owning Riot in my view. Looking forward, Riot is forecasting little growth in its mining capacity for the balance of the year. Investor presentation It’s at ~34 EH/s today, and is looking at ~38 EH/s by the end of the year. The company thinks that will be good enough to maintain its ~4% market share, but as the network grows all the time, and the big miners voraciously add capacity, it would be reasonable to assume that we see Riot gradually cede small amounts of scale relative to its competitors. That is not good for mining costs, so another potential headwind presents itself. Riot also saw its engineering revenue rise from $4.7 million a year ago to $13.9 million this Q1. The company is betting heavily on its Corsicana project, and the potential AI/HPC data center capacity that promises to bring. I like the diversification and using the company’s expertise and assets for a different purpose, but this is a capex-heavy and uncertain endeavor with big stakes. Riot sees this coming online sometime next year, and the hope is that Riot would serve the deep-pocketed AI Hyperscalers. Investor presentation Corsicana alone is going to cost another ~$94 million for the balance of this year, with total remaining capex at ~$156 million. To be fair, Riot has already funded this capex in full so there are no financing concerns. But this is a significant investment to say the least. It could work out beautifully, and Riot could become a preferred provider for Hyperscalers. Or, pricing and/or demand could come in weaker than expected and make the payback period on the company’s capex much longer. We’ll have to wait and see but Riot’s future success hinges upon this to a meaningful degree. My conclusion on this is that if Wall Street were super optimistic about Riot’s AI/HPC future, the stock would be reflecting that. We’ve seen countless examples (Tesla being one) where companies are valued upon the hopes and dreams of the future. Riot has a clear plan and is putting that plan into action, and yet the stock is making new lows. I’d interpret that to mean that Wall Street is skeptical of the potential of this exercise, because wouldn’t institutional investors otherwise be bidding the stock higher? Wrapping up With Riot’s short interest in the mid-20s, and zero signs that big investors are interested in owning this name, I’m at a hold rating for now. The Q1 report showed measured progress against goals we already knew the company had, and that’s fine. I don’t see any big catalysts for upside here as the Bitcoin treasury story simply isn’t working. That doesn’t mean it won’t at some point, but let’s examine the evidence. The idea is that holding Bitcoin should produce higher share prices over time as the value of Bitcoin rises. We saw above that Riot’s correlation to Bitcoin isn’t great, and its valuation against the price of Bitcoin has done nothing but go down. We can also use tangible book value as a measure of this as Bitcoin holdings are part of that. Riot’s price to tangible book value is also making new lows and is currently under 1. That implies that – theoretically – Riot could liquidate and create more value than how the market is valuing the company today. Seeking Alpha It’s hard to argue Riot is quite cheap on this measure, so I won’t. But my point is this; where’s the catalyst for this to improve? In other words, what is going to change to suddenly make this valuation go back up? I can’t answer that for now. It’s also quite interesting that Riot is attempting to employ a modified strategy to that of MSTR, the OG Bitcoin HODLer, which has an enormous P/TBV. Seeking Alpha MSTR’s currently P/TBV is over 5, which is 5.7X that of Riot’s valuation. MSTR’s P/TBV has come down significantly over the past few months but is on the move higher again. I am fully aware the models are not exactly the same, but they’re pretty similar in that both derive a significant amount of their worth from Bitcoin holdings. The only conclusion I can draw from this is that if you’re interested in owning Bitcoin exposure, I don’t think Riot is the way to go about that. You can buy Bitcoin, any exchange-traded product that tracks Bitcoin, or even MSTR if you’re looking for Bitcoin exposure. Out of those options, I think Bitcoin itself (or a well-constructed ETP that tracks it) is the way to go. Riot’s outlook is clouded by a significant strategy shift that may or may not work, and the reality is that the market is not valuing its Bitcoin holdings like they do for MSTR. Riot is way too cheap to have a sell rating, but I don’t see any reason to buy. It’s a hold for now.

Source: Seeking Alpha