At a time when ChatGPT is taking the internet by storm, some distantly related cryptocurrency mining stocks are roaring back from 2022 lows. Hive Blockchain Technologies (TSXV:HIVE) stock has rallied 153% year to date, while Hut 8 Mining (TSX:HUT) stock is up 125% so far this year. The two speculative growth stocks have shown strong recovery momentum during the first quarter of 2023. However, they may not offer similar returns during the remainder of this year.
Interestingly, HIVE and Hut 8 stock have a distant relationship with a currently hot generative artificial intelligence (AI) investment theme. In my book, there’s a relationship between generative AI like ChatGPT, cryptocurrencies, and Web 3.0 or Web3 investment themes.
Generative AI has risen to prominence in 2023, led by the groundbreaking success of Open AI’s ChatGPT: an advanced chatbot that understands human language and generates valuable content. Natural language processing advances and improvements in generative AI’s content quality lead the world closer to an interactive and intelligent web — a long-awaited key feature of Web 3.0: the next-generation internet with decentralized content ownership.
Decentralized content ownership is made possible with blockchain technology. Therefore, generative AI and cryptocurrencies combine to create Web 3.0. They are related long-term investment themes centered on the internet of the future.
Which to buy? Hive stock or Hut 8?
Following a 153% year-to-date gain, Hive Blockchain stock price has shown stronger momentum than Hut 8 stock lately. Hut 8’s 125% gain so far this year doesn’t put the more significant blockchain play far behind, though. Momentum traders may prefer a more buoyant HIVE stock.
They are both cryptocurrency mining businesses whose stock prices are anchored on cryptocurrency markets. They trade in sync and somehow mimic each other. The recent bottoming out of cryptos in 2023 has been a significant driver for the two’s strong stock price gains lately.
However, some key fundamental aspects make HIVE and Hut 8 stock different in some respects.
Hive Blockchain incurs a smaller percentage of its revenue as recurring operating expenses. Its total sales, general, and administrative (SG&A) expenses comprised 6-14% of sales over the past three calendar years. This compares better to Hut 8 Mining, whose SG&A comprised 7.8-25% of annual revenue during the same period.
It appears like Hive could have better breathing room to survive cryptocurrency market downturns; however, something could be amiss. Hive has a significant operating expense recognized under “Other Operating Expenses” for 2022, and its total operating expenses were nearly 72% of revenue last year if we factor in share-based compensation. Hut 8’s total operating expenses were under 34% of sales in 2022.
Hut 8 Mining
Hut 8 is the larger cryptocurrency miner, with a total Bitcoin cache of 9,133 coins by March 31, 2023. The company’s holdings have grown from 9,086 Bitcoin at the end of last year. At this time, Hive Blockchain had 2,372 Bitcoin and had disposed of its Ethereum holdings following ETH’s change to the proof-of-stake concept in September 2022. HUT has better larger Bitcoin upside capacity.
That said, Hut 8’s pending merger with the U.S. Bitcoin Corp (USBTC) could be a significant valuation factor. The upcoming merger of equals will transform Hut 8 into a larger, diversified U.S.-domiciled stock. Revenue volatility could be lower due to reduced foreign currency-induced gains and losses.
The pending merger increases future performance uncertainty, but it may dampen revenue volatility as well.
Most noteworthy, Hut 8 has two revenue-generating segments: crypto mining and high-performance computing. Although high-performance computing revenue represented just 11.2% of total sales in 2022, sales are more recurring and stable. They dampen the overall volatility of Hut 8’s revenue and perhaps earnings, and improve the valuation of the company’s future cash flows.
Hive Blockchain doesn’t have any recurring hosting revenue anymore.
Hive Blockchain stock and Hut 8 are highly volatile cryptocurrency stocks suitable for high-risk tolerant investors. They trade in sync. Just like ChatGPT and the hot AI stocks of today, they contribute to the building blocks of Web 3.0, the future internet. Your long-term bets may still be rewarded with capital gains as the future web unravels. That said, speculative stocks’ elevated volatility makes them only suitable for high-risk portfolios. They may energize your retirement plan if you are still far away from retiring.