The latest capitulation in the more speculative corners of the market has absolutely crushed Bitcoin
mining groups. Today, these miners are trading deep in oversold territory at fire-sale valuation multiples (just fractions of where they began this chaotic year), opening an incredible long-term investment opportunity or even near-term trading play for those Bitcoin bulls. BTC-USD
Bitcoin’s buoyancy relative to the rest of the risk-on market since it bounced off its $25k support level in the wee hours of the morning last Thursday (5/12), further supports its Gold 2.0 “flight-to-safety” aspect that crypto enthusiasts have been campaigning around for years. The decoupling of Bitcoin from other risk assets is a healthy sign of growing adaptation and trust in blockchain technology.
Core Scientific (
CORZ Quick Quote CORZ - Free Report) , a captain of hyperscale-fueled blockchain solutions, holds market leadership in Bitcoin mining & blockchain-focused data center hosting and is looking ripe for a buy after a grand-slam Q1 earnings report last week (5/12).
Despite CORZ’s rollercoaster price action since its official de-SPAC debut on the public markets in mid-January (most recently aimed at the center of the earth), its fundamentally-backed growth narrative is undeniable, and its quarterly release in mid-May invigorated analysts’ interest in this egregiously undervalued leading BTC miner (but has its toes in every blockchain data center market).
CORZ analysts have been providing increasingly bullish outlooks for this best-in-class blockchain innovator across the board since its estimate impelling homerun Q1 earnings report, driving CORZ into a Zacks Rank #1 (Strong Buy).
The Q1 Catalyst
CORZ Q1 results revealed an incredible explosive growth narrative as its quarterly revenues rocketed 255% higher year-over-year with margin expanding operational efficiencies, allowing Core to generate a record 3,202 bitcoins in the first 3 months of 2021 (a nearly 1,500% increase from the same quarter last year).
At the same time, Core Scientific’s hosting operations (a more reliable revenue source) grew by 162% to $33.2 million in Q1 2022, accounting for 17.2% of the firm’s quarterly topline results. The company also participates in the sale of digital-mining equipment, where it managed to generate $26.3 million, which represented an -18% decline from the year prior. The firm’s ability to quickly open the digital asset mining floodgates (hyperscale) allowed it to generate $133 million in Bitcoin sales (average sale price of $41,299 in Q1), which is the catalyst for today’s pitch.
Now the real focus when evaluating digital asset miners is their hash rate, which embodies the firm’s aggregate computing power and relative market share (explained further below). Core Scientific has an industry-leading total hash rate of 16.2 EH/s today (8.3 EH/s for self-mining & 7.9 EH/s for hosting) and plans to break above 30 EH/s before the end of 2022. In the latest earnings release CEO Mike Levitt explained that this hash rate expansion is “fully supported by existing capital structure,” which indicates to me that the risk is to the upside.
Compared to its leading domestic competitors’ Riot (
RIOT Quick Quote RIOT - Free Report) and Marathon ( MARA Quick Quote MARA - Free Report) , CORZ is trading at a relative discount across valuation metrics. Market cap to hash rate (or price to total hash rate per share: P/TH) is a critical measure of price to future profitability in this niche, and CORZ is trading at 147x P/TH compared to MARA & RIOT who are trading at 277x and 187x, respectively. CORZ forward P/E has seen an even deeper discount from the high teens following its public debut to being the year and is now trading at an incomprehensibly low 3.5x, which is considerably below the valuations of RIOT and MARA.
Core Scientific is also provided with economically conditional operational levers concerning the use of its rapidly expanding computing power, which could be utilized primarily for self-mining in the case that BTC continues to trade buoyantly or for additional hosting revenue amid a crypto lull.
Either way, analysts have been offering up some very bullish outlooks for this stock, with the latest price targets sitting between $10 and $18 a share (depending on where BTC trades), representing an up upside of between 150% and 350% from where CORZ closed Thursday (5/19).
Crypto Mining & Hash Rates
Cryptocurrency mining, contrary to what your intuition tells you, is the process of verifying new transactions made with a given digital currency, and in turn, being “rewarded” for this act with new coins. Verifying a transaction involves immense computing power to validate each node on a blockchain network and an accurately updated ledger (a new block in the chain). This crypto-mining process is referred to in the cryptographic world as Proof-of-Work (PoW), which Bitcoin (the most heavily mined and leading cryptocurrency on the market) and Ethereum both employ.
The practice of mining Bitcoin is often described to laymen as solving a highly complex math problem, and the computers that help find the solution are awarded newly minted Bitcoin. In reality, it’s a speed-driven guessing game to decrypt a random code, with the fastest computers being the most successful. NVIDIA’s (
NVDA Quick Quote NVDA - Free Report) best-in-class GPUs are perfect for this type of hyper-speed computing and are the most sought-after products in the crypto mining world.
Mining is a necessary operation to ensure the security of Bitcoin’s (or any other PoW digital currency’s) blockchain network, and the more miners the more secure the coin. The caveat here is that Bitcoin is becoming incrementally less lucrative to mine, with 90% of the coins (roughly 19 million) having already been mined and only 2 million of these digital coins are left to be mined (expected to be mined by 2040), and incremental PoW rewards are slowly dwindling.
Furthermore, the cost associated with mining bitcoin (energy and processing power) are extremely high and only provide profits when the cryptocurrency is trading above a threshold price. Crypto mining is all about scale, with just a few operators controlling most of this market.
Miners’ market share is represented by hash rates, which signifies the speed at which entities computes transaction verification data necessary to reap the Bitcoin rewards and scale is the single most important differentiating factor. The higher the hash rate the more nodes that can be verified per second, meaning that hash rates and mining efficiency are directly correlated. Unfortunately, this positive hash rate correlation is a also factor of energy usage (higher hash rates require more energy).
Hash rates are measured in seconds (hash per second or H/s), and you will often see kH/s, MH/s, or even EH/s, which are in terms of 1,000 hashes per second, 1 million hashes per second, or 1 quintillion hashes a second, respectively.
The total global Bitcoin mining market has an endlessly expanding hash rate of more than 220 EH/s today, and US miners now control 38% of this total computing power (85 Eh/s) with the latest regulatory crackdowns in China’s crypto opening the door for massive market share growth domestically (though Chinese miners have continued to operate below the regulatory radar).
CORZ provides you with a leveraged way to bet on Bitcoin’s inevitable mass adaptation as the next generation’s Gold 2.0. Millennial’s penchant for progress since the pandemic started has propelled Bitcoin from less than $5k to $65,000 per coin (1,200%) in the 52-weeks that followed the pandemic sell-off.
83% of Millennial millionaires (the leaders of the future) own cryptocurrency and roughly 500,000 crypto-backed Web3 projects are currently in development (the average developer age is 36). The level of commitment and dedication by the next generation to decentralize the global economic system is unparalleled and Bitcoin stands at the heart of this ecosystem.
Keep in mind that CORZ is on the far-right barbell of extreme high-risk/high-reward so bear this outsized risk in mind. CORZ also holds that de-SPACed taboo, which many traders have been indiscriminately short-selling into oblivion (providing this valuable opportunity today but expect the choppy trading to continue into the summer months).
Nevertheless, the 4 covering CORZ analysts are calling the stock a strong buy today, with presumed BTC buoyancy remaining at the core of that argument. If BTC drops materially below $20k (the pivotal support level that traders are watching for) I would be rethinking this investment, but I continue to be bullish on the space and would consider Riot Blockchain (
RIOT Quick Quote RIOT - Free Report) as an equally judicious buy here.