Summary HUT 8 Mining Corp. has shown financial and operational turnaround under its new CEO, focusing on self-mining and efficiency. The company's balance sheet remains very liquid with over 9,000 BTC holdings, reducing the need for debt and potential dilution. HUT's AI vertical business could start generating revenue in the second half of the year, potentially leading to further stock price decoupling from Bitcoin. HUT 8 Mining Corp. ( HUT ) has been one of the mining companies on my radar since the start of this Bitcoin ( BTC-USD ) market cycle. In my coverage of the stock about ten months ago, I recommended a “hold” - at a time when I gave peers like Marathon Digital ( MARA ) and Riot Platforms ( RIOT ) a “sell” rating. The growing Bitcoin miner appealed to me then because of its strong cash position (strengthened by its BTC holding) and the planned merger with USBTC at that time, though the company faced several downtime issues in that period. My following coverage of HUT 8 was a little over six months ago (in January). In that article, which I titled HUT 8: Diversified Business Appeal , I highlighted how HUT’s growing high-performance computing (HPC) business makes the company an attractive Bitcoin miner. I also talked about the miner’s low price-to-hash ratio compared to peers, and the more moderate price action the stock had seen compared to peers who had recorded triple-digit percentage gains. The stock is up about 67% on that “buy” rating. Considering the YTD gain and the current stock price, is there room for more upside for HUT? HUT’s Financial and Operations Turnaround Since Asher Genoot became CEO of HUT, there has been some turnaround in the company’s operations. In the CEO’s own words: “We have centered Hut 8 on operating excellence and bottom-line economics.” Part of the necessary steps for the company has been the sunsetting of inefficient facilities and products. HUT’s facility at Drumheller was shut down in Q1 for being inefficient. In articles, I wrote last month covering CleanSpark ( CLSK ) and Marathon Digital, I talked about how critical it is for a miner to directly own and control key aspects of its operations at this stage of the Bitcoin market cycle. Since the fourth halving event, a miner’s direct control over such key variables has been one of the most important qualitative factors I look for before considering adding a miner stock to my portfolio. MARA now directly owns and controls 54% of its electricity as opposed to just 3% previously, and runs mostly proprietary software and hardware. Bitdeer ( BTDR ) is moving towards incorporating proprietary hardware and software in its operations. Miners who still rely heavily on third-party providers for resources like electricity and facilities could easily lag in operational efficiency. HUT 8 has moved away from running most of its miners at hosted facilities and now operates its own facilities. Fleets from hosted facilities have been relocated to HUT’s own facilities. HUT is also implementing proprietary software that will monitor its energy usage and help the miner attain efficient energy usage. Moving to its own site has lowered HUT’s cost to mine BTC due to its lower all-in energy cost of less than $275,000 per megawatt for 63 megawatts of new capacity the miner brought online in Q1. Cost to mine at HUT’s own facilities is expected to eventually become 30% lower compared to when the company mainly used hosted facilities. The miner is in the process of developing 1,100 MW of electricity and has ample dry powder to achieve this. HUT’s balance sheet remains very liquid. Its 9,102 BTC holding at the end of Q1 resulted in a $276.4 million net income, due to a valuation of its BTC holdings to fair value based on the FASB fair value accounting rule which Bitcoin miners have adopted. Net assets (total assets minus total liabilities) are about three times greater than total liabilities. Total assets are about $1 billion and total liabilities are $258 million. Note that HUT’s Q1 balance sheet includes assets from its acquisition of four power plants from entities controlled by Validus Power Corp., earlier this year. What makes HUT's balance sheet more attractive and highly liquid is that its 9,102 BTC holdings, marked at a fair value of around $650 million, make up over 50% of its total assets. The bottom line is that at the moment HUT can comfortably cover its debt obligation, invest in growth opportunities, and have much less need to take on debt with unfavorable conditions. Bottom Line I like the fact that HUT is focusing on electricity capacity expansion to enhance its self-mining. One of the drawbacks HUT has faced in the past has been power surges at some of its facilities, resulting in operational inefficiencies. Challenges with mining operations are about to be a thing of the past for HUT. All indicators suggest that HUT’s AI vertical business could commence generating sales soon. HUT has hinted at the high possibility of generating revenue from its AI vertical business in the second half of this year. According to HUT’s June operations update , 512 Nvidia H100 GPUs were installed and configured at an HPC data center in June as part of outfitting the data centers to accommodate the new AI infrastructure. One of the perks of holding HUT in a Bitcoin stock portfolio is its much lesser risk of dilution compared to some of its mining peers. I don't see any need for HUT to raise funds through equity in the foreseeable future. It's over 9,000 BTC stash, the recent $150 million Coatue funding to boost its HPC line for its AI vertical business, and its restated $65 million credit facility from Coinbase provide all the dry powder the company would be needing. It is worth mentioning that while HUT doesn't face risk of immediate dilution, there is risk of dilution at some point in the future. The $150 million Coatue funding, for example, was secured through convertible notes. HUT Golden Cross (barchart.com) From a technical standpoint, HUT’s MA50 crossed MA200, forming a Golden Cross last week. The last Golden Cross last year sent the stock soaring 120% in a 60-day period. There is potential for HUT forming a strong uptrend channel and see a similar uptrend after the recent Golden Cross if the current Bitcoin sell-off FUD doesn't impede Bitcoin’s momentum for too long. HUT vs BTC price movement 3Y (Seeking Alpha) As seen in the chart above, HUT has majorly mirrored Bitcoin price movements; though there has been some decoupling between HUT and BTC since Q3 last year, HUT remains mainly regarded as a Bitcoin stock and is not immune from the effects of Bitcoin’s volatility. However, I believe that HUT is one of the Bitcoin stocks that could see a further price decoupling from Bitcoin soon, when the AI vertical business takes full shape and revenue from that segment begins to contribute a significant share to total revenue. Though the stock is up over 60% since the last “buy” rating in January, I see more upside potential for HUT based on simple, clear technical indicators and strong qualitative factors.
