Hello everyone and welcome back to another newsletter in our series of weekly stock picks. Every week we try to bring you stocks that we love that we think are set to explode and for the most part have high betas. This week we are bringing you HIVE technologies. This is a company that we have done a lot of research on and have sen many people recently mentioning it on twitter. We decided to do our own digging on the company and we love what they have to offer.

Introduction

Hive Digital Technologies Ltd. was originally a bitcoin mining company that has began to shift its focus into high-performance computing infrastructure, including AI-related compute capacity. HIVE builds and operates data centers powered by renewable energy (hydroelectric, etc.) and uses specialized mining hardware (ASICs) to mine Bitcoin and other digital assets. Its operations span facilities in Canada, Sweden, and Paraguay, often taking advantage of low-cost, clean energy to improve mining economics. The company has shifted its focus from Bitcoin mining to using this infrastructure that it has been building to now market itself to major AI companies as a data center company. They currently market themselves as a “green” crypto miner by sourcing renewable power, which helps reduce electricity costs (a major mining expense) and market criticism around mining’s environmental impact. This includes converting mining facilities into Tier III+ data centers capable of supporting enterprise AI workloads and GPU cloud services. We always talk about on this newsletter how we think the next layer in the AI race will be the data center trade, which is seeing so much demand it can’t keep up with it. Hive is another one of those companies positioned to be able to excel in this new AI race.

Why we are focusing on the company

What really caught out eye about this company was the rapid expansion that it has been seeing in both its Bitcoin mining capacity and AI infrastructure businesses. On the bitcoin side of things, they reported reaching about 25 exhaust per second of global mining capacity and which is an average of about 9 bitcoin per day. This comes out to around 900k to a million dollars a day of revenue just off of this sector of the business alone. On the data center side of the company they are currently upgrading and building out Tier III+ data centers that support large GPU clusters (up to tens of thousands of GPUs) for AI and high-performance computing. This could bring in massive partners who are in dire need of data centers for their compute. To help with this build out, they have recently secured land and partnerships in Canada and Paraguay for expansion, including a potential 100 MW hydroelectric-powered data center campus. We will be talking about this expansion into Paraguay shortly and we have done some pretty detailed math to help our readers understand what we took from this recent announcement.

The reason why we are so focused on this company and have decided to dive deeper into a thesis for our readers is not what the business already is, but what we think the business could become. Right now the main revenue stream for the company is still mining bitcoin, which has driven a ton of revenue for the company, but we think the future of the company and where it seems to be pivoting to is building out data centers and provided green energy to these data centers, which will allow them to thrive in. They are well positioned in this field due to the permits they already have, the fact that they already own GPU assets, and have the mining infrastructure to make this process much easier. With this transfer over to a data center company from a bitcoin mining company, they could become less correlated to the price action of bitcoin, will see more stable margins with recurring revenue, will see much higher multiples, and with the halving eventually going to take place, this will make it even harder to mine for bitcoin. We are currently looking into this company for the AI play while also recognizing that Bitcoin is down and we believe will see a run here again. We also believe that a big eye catcher for large investors and partners will be the focus on renewable energy for mining operations. Many politicians have been pushing back hard on the idea of data centers eating up all of the power on grids. This is a solution to this problem that we believe will carry a lot of weight in the future.

Buyout Opportunity?

According to S&P global, data center deals have hit an all time high, and we believe this will continue into the future, which could see HIVE as a possible buyout opportunity. Whenever there is talks of the larger AI companies buying out smaller AI companies, the prices will begin to rise, because it is a large likelihood if we are to see a deal in the near future where HIVE is bought out by a large company, we believe the multiple will be MASSIVE. These major companies are getting desperate for compute, and with HIVE already having the GPUs and the infrastructure, it most likely is on many radars.

If the company does not see any interest on a buyout, we believe it will be business as usual for the company and their new project is one that is catching our eye. On December 5th they posted a new video, and the amount of energy that is currently being produced is immense.

We wanted to give a scenario where it could be possible that HIVE could gain control of 10% of the total capacity of Itaipu, which is 14,000 MW. Obviously this is a MASSIVE amount, but we believe that it could be in reach for the company. For reference for the below calculation, HIVE currently sits at a market cap of 650 million, with 540 MW of mining power. This would be only 2× Hive’s current footprint, yet would instantly place Hive among the top 10 AI data-center operators globally. The below valuation is based off of averages for other companies like Coreweave, Iren, and Wulf, who all operate in the data center world.

If this 10% is met, this stock could be looking at 13-26x upside just based off of this project expanding to 1.4GW of data, which equates to 10% of the current capacity to this river in Paraguay.

This would immediately put the company up there with some of the largest in the world like CoreWeave and Equinix. This scenario is also very plausible based on our research that we have done. Paraguay is currently marketing this energy to hyperscalers, and with HIVE already having a turbine in the region, they should have first dibs at any more room for growth. There have been many people on twitter theorizing that the company could see more then 10%, but we think that 10% is the best estimate right now of what is possible in the near future for the company. We will be keeping our eyes out on press releases surrounding this river and if the company is planning to expand.

With all small companies that are high beta, there are usually many risk, and HIVE is no different. There current core cash flow is still heavily dependent on Bitcoin mining. Revenue and margins move almost one-for-one with BTC price at the time of this newsletter being written. As HIVE has been seeing recently, if Bitcoin drops sharply, profitability can evaporate fast. We have also already talked about the Bitcoin halving, which could be happening soon. This would be detrimental to the current recurring revenue for mining for the company, but the Bitcoin that they currently hold could also see a price increase.

Another risk that the company could see in the near future is the marketing as “green,” which doesn’t eliminate risk of repriced power, renegotiated contracts in the regions they operate, and more regulation or political tension in Paraguay. The company is also obviously is facing a ton of competition, but right now none are in Paraguay, and it seems like the AI race for data centers is not stopping any time soon.

How we are trading

Our eyes right now are on the new operations that the company has in Paraguay and if they could take a hold of this seemingly hidden gem down in South America. We are also focused on the expansion of the company out of the bitcoin mining space and into the data center space. This will be way more profitable for the company in the future of they could hit on all of their goals of expansion. We are holding Hive right now in hopes that the company could get bought out here soon, but even if this doesn’t happen we believe that the company has a super bright future. Any stock dilution that happens we will be buying the dip and realizing that this is probably going to happen soon with how much money they will need to expand. Overall we love this company and think this another great way to get into data center investing.

This newsletter is for informational and educational purposes only and reflects the personal opinions of the authors. It does not constitute financial, investment, legal, or tax advice, nor is it a recommendation or solicitation to buy, sell, or hold any securities. All views expressed are subject to change without notice. Any projections, estimates, or forward-looking statements are hypothetical in nature, based on assumptions that may not materialize, and are provided for illustrative purposes only. Actual results may differ materially. The authors may hold positions in the securities discussed and may change such positions at any time without notice. Readers should conduct their own independent research and consult with a licensed financial professional before making any investment decisions. We make no representations or warranties regarding the accuracy or completeness of the information presented and accept no liability for any losses arising from reliance on this content.

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