I have to admit, I didn't see this past week's move in Bitfarms (BITF +1.39%) coming.
NASDAQ: BITF
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In fact, I had just started to reconsider my core thesis around certain Bitcoin mining companies in this sector, with a recent piece on Cleanspark (CLSK +4.33%) highlighting its impressive earnings beat (which led to a 14% surge after these numbers were reported). This move suggested to me that many were starting to believe that perhaps all companies in the Bitcoin mining space could effectively transition toward a model in which their compute is effectively rented out to the highest bidder.
That means that data centers, hyperscalers, and other compute-intensive industries looking to dominate their industries could look to Bitcoin miners and their impressive assortment of GPUs and overall compute as a lower-cost way to power their growth.
Here's why Bitfarms stock does not appear to be following suit, and why this cryptocurrency mining stock fell 16% over the past week following the company's earnings report.
What happened?
Source: Getty Images.
To start, Bitfarms' results for its third quarter (reported before Cleanspark's recent blowout numbers) fell short of investor expectations by a wide margin. A loss of $0.08 per share, coupled with revenue that came in at $69.2 million (expectations were for revenue of $87.4 million), sparked a sell-off for most of the past month (outside of a breather following its competitor's impressive report).
I'd actually think Bitfarms may be a more strategic beneficiary of a widespread shift in this sector. Suppose all companies collectively decide to forego their Bitcoin mining operations (in whole or in part) to become an essential part of the AI infrastructure needed to power the technology that will be in place tomorrow. In that case, there's a lot to like about Bitfarms' low-cost production model. Operating mostly in the U.S. northeast and Quebec (which has the lowest power prices in North America), this is a company with a comparative advantage relative to its peers.
That's not to say other companies aren't trying to follow in Bitfarms' footsteps. I expect competition for lower-cost power sources to continue increasing from here.
However, I would suggest that Bitfarms' strategic upside from a company-side shift from being a pure-play Bitcoin miner to a company focused on being the low-cost compute provider of choice for a range of partners could be a very lucrative move.
For now, investors appear to be more concerned about where crypto prices are trending in the near-term, and there's reason for that. Given Bitfarms' past results, a much quicker transition toward the AI and machine learning technology sectors, away from Bitcoin mining, will be necessary. Investors appear to be uncertain about how quickly such a shift can occur and whether Bitfarms is willing to undertake a massive strategic turnaround.
