You often read articles about how $10,000 invested in Amazon, Microsoft, or Nvidia in 2010 is now worth hundreds of thousands of dollars. With their rapid growth trajectories and millionaire-making rallies, they have surpassed the broader market. What history teaches us is that investing in future technology which has the potential to accelerate exponentially could be a million-dollar investment if adopted widely. This investment has its highs and lows, but its core business and the ability to adapt to new tech trends remain unchanged. Hive Digital Technologies (TSXV:HIVE) is currently walking on the path of exponential growth.
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Where is Hive’s true growth potential
Hive’s core business has been Bitcoin mining, which is its significant revenue generator. However, profits from bitcoin mining are shrinking with every halving event. This encouraged Hive to diversify its revenue into a more profitable venture, the BUZZ artificial intelligence (AI) Cloud.
AI cloud has the potential to grow exponentially as the growing adoption of AI increases demand for cloud services.
To give you a backdrop of history repeating itself, both Amazon and Microsoft started with a different core business and found their next trillion-dollar opportunity in the Cloud. Today, Microsoft Azure and Amazon Web Services are the biggest contributors to their profits. But they began investing in the cloud business in the 2010s, and the early profits were realized in 2015.
Hive is significantly expanding its Exahash per second (EH/s) capacity from six to 24 EH/s in 2025. Its data centres use renewable energy and are powered by Nvidia graphics processing units (GPUs). Given the risk of uncertainty around capacity usage, Hive has funded the entire expansion by selling some of its Bitcoins. With no debt on its balance sheet, the risk of fixed costs is eliminated. Moreover, the company is using the accelerated depreciation method to expense the capital spending on GPUs in two years.
This will increase profits in the coming years as all major expenses have been pulled forward.
How is Hive tapping the AI growth opportunity?
Hive is working with Bell Canada to develop an AI Fabric data centre. It is also involved in facilitating Canada’s sovereign AI.
In the third quarter, Hive’s BUZZ high-performance computing (HPC) revenue rose 175% year-over-year to US$5.2 million with direct costs of US$2 million. However, the sequential growth was just 7.6%.
Hive aims to grow the BUZZ platform’s annual revenue run-rate sevenfold from US$20 million to $140 million in 2026. This business can generate an 80% operating margin after taking electrical and data centre costs into consideration.
Note that Hive reported a net loss of US$15.8 million in the third quarter because of $38.3 million in accelerated two-year depreciation. From this perspective, Hive’s 13.4 times price-to-earnings (P/E) ratio might make the stock look expensive. But note that tech stocks rally at an exponential rate when their tech scales.
Today, BUZZ accounts for only 6% of HIVE’s revenue. If the company succeeds in achieving its exponential growth target, BUZZ could account for 40% of its revenue. A higher share of high-margin business in the next five to seven years will make today’s 13.4 times P/E ratio look cheap.
In a few years, you’ll probably regret not owning Hive stock
Hive has its risks. It is exposed to Bitcoin price fluctuations and rising energy and computing costs. There is also the risk of the AI cycle slowing or delayed AI investments by corporates. In either case, Hive will have to bear the fixed cost of running the data centre and keep updating its EH/s.
However, once Hive achieves a certain scale and manages to sustain profits, the cyclical and exponential stock price momentum will normalize. Like Microsoft and Amazon, you’ll probably regret not owning Hive stock during its millionaire-making years.
