Summary Hut 8 has evolved into a diversified energy and digital infrastructure platform, boasting a 10,800 MW capacity pipeline and strong Bitcoin reserves. Q2 earnings showed a significant turnaround to a $137.5 million net income, primarily from fair value gains on its Bitcoin holdings. HUT maintains a large reserve of over 10,000 BTC. Despite the recent rally, HUT's market cap of ~$3.3 billion trades at a discount to the implied equity value of its 80% stake in American Bitcoin, suggesting a potential undervaluation. Risks include potential dilution and execution challenges, but HUT's capital flexibility and recurring revenue prospects support a continued Buy rating. Hut 8 Mining Corporation (NASDAQ: HUT ) has been a favorite on my coverage list of Bitcoin miners, and one I have maintained a Buy rating on for most of my coverage here on Seeking Alpha. I maintained Buy all these years because HUT consistently positioned itself strategically with strong balance sheet liquidity, large Bitcoin reserves, and timely pivots in its business model, even through volatile market cycles. Analyst's rating history (Seeking Alpha) My most recent Hut 8 coverage was back in May this year, in the wake of the Q1 earnings. Despite the $80 million net loss (due to non-cash charges and impairments) and the top line miss, I maintained a Buy because of the impressive Bitcoin holding (worth over $1 billion at the time), the creation of American Bitcoin ( ABTC ) as a separate entity, and the shift to a more capital-light business model as the Bitcoin mining business was being spun off into its own business structure. HUT is up an impressive 122% since that coverage in May. Below is an excerpt from the coverage in May, highlighting the American Bitcoin spin-off. The creation of American Bitcoin is a very important Q1 highlight (if not the most important highlight) because it carries several important operational and financial implications for HUT, as the company moves away from being just a speculative Bitcoin miner to being an energy-first digital infrastructure platform. HUT has morphed its mining operations into what looks like an REIT lease-like structure. In the new structure, HUT owns and operates the hard assets like facilities, rack, and energy, while American Bitcoin is like the “tenant” that leases the hard assets at colocation sites, and uses them to operate its ASICS and scale its hashrate independently. - Excerpt from previous coverage At this juncture, I believe the investment case for HUT has just become stronger. In this follow-up piece, I’d review the performance of HUT on the back of the Q2 earnings, the impact from the spin-off of American Bitcoin, and HUT’s huge stake in ABTC and the leverage it potentially gives HUT. Then a look at HUT’s new focus on power infrastructure with the huge pipeline power capacity and the potential it holds for the company and its investors. HUT’s Q2: Missed Revenue, Stronger Balance Sheet, Ambitious Pipeline Miners with substantial Bitcoin holdings on their balance sheet are seeing strong upside currently, reporting a turnaround in bottom line numbers in Q2 from fair value gains on their Bitcoin assets. Mara Holdings ( MARA ) reported net income of $808.2 million (vs. a loss a year ago). Riot Platforms ( RIOT ) reported a net income of $219.5 million, and CleanSpark ( CLSK ) reported a net income of $257.4 million, both reversing prior-year losses, influenced by Bitcoin price appreciation as Bitcoin rose about 25% in Q2. HUT’s Q2 earnings showed a $217.6 million gain on digital assets, which swung the bottom line positive to $137.5 million from a net loss of $72.2 million a year ago; adjusted EBITDA increased by ~484 YoY to $221.2 million. Q2 was a pivotal and high-stakes one for HUT. A miss on the top line was no surprise, in my view, because of the strategic business shift from a pure-play Bitcoin mining business model to a more diversified energy and digital infrastructure platform. I, therefore, believe that some of the current financial numbers don't paint the picture yet for what HUT’s long-term trajectory is shaping to be. HUT’s Q2 top line figure of $41.3 million missed consensus estimates of ~$49 million. And the revenue mix saw the lion’s share of revenue still coming from the company's Compute segment, which accounted for $34.3 million, or 83%, of the total Q2 revenue. The Power segment and Digital Infrastructure segment saw $5.5 million and $1.5 million in revenue, respectively. Management attributed the decline in the top line and the revenue miss from the latter two segments to the “deliberate strategic shift” the company underwent in Q1 and Q2. HUT also terminated several existing contracts with Ionic Digital – like the Managed Services Agreement and the ASIC Colocation Agreement with Ionic Digital. The main attractions at this juncture, which have also been the driving factors for HUT’s recent momentum, are HUT’s sheer size of 10,800 MW long-term energy pipeline and the listing of American Bitcoin shares on Nasdaq last week. In a crypto bull market, crypto stocks tend to see mirroring rallies, but this here is a different narrative for HUT, in my view. And HUT is shaping up to see sustainable momentum. As an energy and infrastructure platform, HUT stands the chance to capitalize on the growing demand for AI workloads grow the top line from recurring revenue streams (which investors could gauge using the ARR/MW - Annual Recurring Revenue per Megawatt metric) while de-risking its business model. Even if as investors we may lack the technical expertise or information for a full feasibility study on whether HUT’s long-term 10,800 MW ambition is feasible and whether the 3,100 MW subset of that capacity, which is already under exclusivity as of Q2 end (meaning sites where HUT has secured definitive land or power agreements), is deliverable in the time frames management has projected, we can still draw tangible insight from the progress reports on HUT’s pipeline advancement, site by site, and how much of the capacity has moved from being “under exclusivity” to being “under development.” Post Q2, HUT’s latest press release related to capacity buildout has given an impressive update on the progress on pipeline buildout. The announcement two weeks ago (on August 26) moved the status of 1,530 MW from capacity Under Exclusivity to Capacity Under Development. They include the 592-acre 300 MW River Bend Campus site in Louisiana, two sites in Texas totaling 1,180 MW, and another 50 MW site in Illinois. HUT currently has 1,020 MW of capacity under management. The latest addition to the capacity under management was the recently energized 205 MW Vega data center . Vega was brought online in June this year, under a year from the site acquisition, which demonstrates that HUT has the ability to execute quickly. With 1,020 MW already under management, the energization of new 1,530 MW sites under development is expected to bring HUT's total platform capacity to over 2.5 gigawatts. To top off the impressive operational and strategic progress highlighted so far, HUT’s capital management has potentially gotten less dilutive for investors. Hut 8’s Bitcoin-backed credit facility with Coinbase was doubled from $65 million to up to $130 million in Q2, and as of the end of Q2, HUT had drawn $65 million of that amount. Beyond doubling the available non-dilutive capital, terms of the credit facility also improved from a variable floating-rate structure that had been as high as 10.5% to 11.5% to a more favorable fixed rate of 9.0%. HUT’s Bitcoin stash grew by 17% QoQ in Q2, and as of Q2 end, HUT held 10,667 BTC (some of which are encumbered as collateral in the Coinbase credit facility). The company also recently launched a new $1 billion ATM equity program and has secured a separate $200 million revolving credit facility with Two Prime. The multiple sources of financing, which include cash, credit, and Bitcoin, now give Hut 8 a total liquidity of up to $2.4 billion. The large and increasing Bitcoin reserve continues to serve as strong collateral, which is already creating a lower cost of capital and improved financial flexibility for HUT. HUT Is Not Yet Overvalued Despite HUT’s steady rally in the past year, HUT still isn’t overvalued, in my view. The current P/E among Bitcoin miners with substantial Bitcoin on the balance sheet might be misleading if we look at it from a pure earnings angle, because net income is inflated by fair value gains on Bitcoin holdings. So these miners now have a similar valuation picture based on earnings with lower P/E multiples compared to their historic valuations. Data by YCharts In terms of sales, I think HUT’s current stock price and 24x P/S multiple can still be considered conservative if we take into account the upcoming 1,530 sites about to go online in Q4 this year and in 2026. That level of infrastructure holds immense potential. We can see what has happened with Core Scientific in the $9 billion CoreWeave all-stock acquisition at a sizeable premium (which, if it closes, could still be a win for investors either way); and, more recently, Nebius Group ( NBIS ) in the multi-year Microsoft AI infrastructure deal valued at up to $19.4 billion over the next five years. HUT’s valuation further improves if we perform a sum-of-the-parts valuation that is inclusive of the company's 80% ownership of American Bitcoin. Since ABTC started trading last week, it has seen volatility in valuation and currently sits around a $7 billion market cap. Though I think there will be a cool off and ABTC will likely see a correction because of the low float, unlocks ahead, and high speculation the stock has seen. I believe the speculation is largely driven by the high profile backings from Eric Trump and Donald Trump Jr. I've highlighted these in more detail in a separate ABTC article here on Seeking Alpha. HUT's ownership of ABTC implies a multibillion equity value at ABTC’s current ~$7 billion market cap. If that is plugged into a sum-of-the-parts analysis, it is higher than HUT’s own total equity value of $3.3 billion. I find a case for what seems like a “holdco discount” undervaluation and potential for re-rating here. While HUT’s operations and the capacity pipeline and progress are impressive, its total market value compared to ABTC’s makes HUT look like a “stub stock.” Risks HUT’s latest $1 billion ATM financing means there is potential for dilution, despite the substantial Bitcoin holdings and existing credit facilities. The use of Bitcoin as collateral also poses some risks despite the advantage it offers in terms of access to lower-cost and non-dilutive financing. There is the risk of forced liquidation of collateral in the event of defaults on obligations. If the price of Bitcoin were to fall dramatically, the value of the collateral would decrease, potentially triggering a margin call. Execution risk also remains a key factor for investors to consider, as site energization timelines may slip and policies surrounding power markets (energy pricing, for example) could reshape some of HUT’s long-term economics. Takeaway Hut 8 has transitioned from a pure Bitcoin miner to a diversified energy and infrastructure platform with over 10,800 MW gross capacity in its pipeline. The pivot presents the potential for growing recurring revenue potential, as well as the strategic upside from its 80% stake in American Bitcoin. The expanded credit facilities and a growing Bitcoin reserve provide enough buffer and dry powder for such capacity buildout. At a ~$3.3 billion market cap, HUT trades at a discount relative to its ABTC stake, suggesting room for re-rating. Risks remain from dilution, collateralized loans, and execution on large-scale projects, but the long-term setup points to continued upside.
