Shares of Canaan Inc., a Singapore-based company that’s already on the Nasdaq, could rise at least five times, an analyst predicted. The company, which makes ASIC chips used for mining Bitcoin and is expanding its own self-mining operations, has seen its stock struggle recently. Despite this, even in the midst of potential shutdown-sparked turmoil, one analyst is optimistic that a major catalyst is coming.
Canaan’s stock closed the day at $0.60 and is 21% down from a month ago. Bitcoin mining company stocks, including Canaan, have taken a hit this year due to the asset's price drop, increasing difficulty in mining new coins, and smaller rewards after last year's halving. In 2023, the next Bitcoin halving occurred. This cut the reward for confirming transactions on the blockchain in half, down from 6.25 BTC to only 3.125 BTC.
Bullish Outlook
Benchmark equity research analyst Mark Palmer initiated Canaan coverage Tuesday with a $3 price target on the stock. That’s a possible 5x increase from where it’s currently trading at. Palmer believes that Canaan's strategic expansion into North America and diversification of revenue streams will drive the stock's rise.
"We believe the company’s ADRs are very inexpensive" - Mark Palmer
Canaan's expansion into North America is expected to position the company to capitalize on favorable regulatory environments and lower energy costs, boosting its mining operations and overall profitability. The new push into home mining rigs has given a lift to the company.
Diversifying Revenue Streams
For Canaan, the profitability of its business has become inextricably linked to the Bitcoin mining industry itself. Additionally, the company has been working to enhance its revenue diversification efforts to lower its dependency on Bitcoin prices.
"CAN, by expanding into consumer markets, has diversified its revenue streams" - Mark Palmer
We are further diversifying by bringing the consumer market home with consumer tailoring home mining rigs. This strategy provides revenue diversification and reduces the drag Bitcoin’s volatility used to have on our financial results. By diversifying, Canaan removes the insulation effects of vibrant swings from the vibrant swings and affects Canaan securities’ assessment.
Market Context
Though Canaan came away with a bullish recommendation, that same faith has not carried over to the entire Bitcoin mining industry. Shortly afterward, Compass Point downgraded MARA Holdings from Buy to Neutral. This points to the broader difficulties and uncertainty plaguing the cryptocurrency mining sector.
Regardless of the risk, many analysts feel that Canaan’s strategic moves and strong pro forma growth prospects present an attractive investment opportunity. Both are past Silver Award Winners, and both focus on driving technological innovation and expanding into new markets. To build sustainable, long-term value for shareholders, by diversifying its revenue streams.
