Summary Canaan's strategic rollout of the A14 and A15 series miners aligns with rising demand for efficient hardware, boosting financials and market positioning. Despite a Q2 net loss, Canaan has improved operations, reducing operating expenses by 10.4% QoQ and increasing revenue to $71.9 million. Canaan's decreasing debt load and undervaluation compared to peers position it well to capitalize on Bitcoin's bullish momentum and hardware demand. Risks include Bitcoin's volatility and potential supply chain disruptions from U.S. policies, but Canaan's strong order backlog and market alignment offer upside potential. Bitcoin ( BTC-USD ) mining hardware manufacturers see increased backlogs around and after the Bitcoin halving event. If they are strategic and deliver upgraded products timely, this boosts their overall financials. Canaan Inc. ( CAN ) began the rollout and bulk delivery of the A14 series miner in Q2. The A14 series miners come in both air-cooled and liquid-cooled models. The A1466 delivers 150 TH/s at 21.5 J/T, and the A1466I achieves 170 TH/s at an improved efficiency of 19.5 J/T. Canaan has also recently begun shipping a more efficient A15 series miner. Data by YCharts I initiated coverage on Canaan in June with a “hold” rating. The stock was (and still is irrespective of the recent upward movement) one of the very few Bitcoin stocks that have fully leveraged the Bitcoin momentum since the start of this year. Though CAN showed potential for growth at the time, inventory management posed challenges for the company. Mining hardware manufacturers often face inventory challenges as hardware becomes inefficient for Bitcoin mining at different stages of the Bitcoin market cycle and the demand for hardware type and performance constantly changes. Canaan’s Q2: New Hardware Launch and Improved Operations Canaan showed improvements in its operations in Q2. And the introduction of the more efficient A14 series miners was a major highlight in Q2. Canaan was able to beat management Q2 revenue guidance of $70 million by $1.9 million, recording $71.9 in revenue. This has prompted a slight increase in Q3 guidance to $73, which was also initially $70 million. Canaan reported a non-GAAP adjusted EBITDA loss of ~$30.6 million, a slight improvement from $31.9 million in the previous quarter, reflecting cost-cutting efforts and adjustments for impairments and fair value changes. Q2’s net loss remained worrisome at $41.9 million. Total OpEx (Canaan Inc.) Total operating expenses saw a decline of 10.4% QoQ. Q2 total OpEx was $27.5 million as against Q1 total OpEx of $30.7 million, showing Canaan’s cost-cutting measures, especially in SG&A spending, with a notable reduction in stock-based compensations. This contributed to the reduction in operating loss, which decreased to $12.4 million from $17.7 million in Q1 - a 30% improvement. Despite improvements in operations, the bottom line was influenced by unrealized losses due to a fair value change of $10 million on Bitcoin holdings due to the asset’s price decline at the time. ASIC price index (hashrateindex.com) Q2 could have been a much better fiscal quarter for Canaan. Revenue in Q2 could have been higher if the market-wide prices of mining rigs had improved. The chart above represents the price per terahash trend of Bitcoin miners. We can see that the current price per terahash is a far cry from where it was during the last bull market in 2021. Average computing power sold in Q2 (Canaan Inc.) Canaan’s average selling price (“ASP”) in Q2, which is the average revenue per terahash of mining power sold in the quarter, rose by 33% QoQ. And the company recorded a total of $6.2 million in total computing power sales for the quarter. The higher total computing sales showed an increase in demand. And the more important metric, which is the ASP, showed an increase in the price of hardware. We could be set to enter the stage of the market cycle where the increase in ASP will be sustainable for the coming months. The increase in ASP indicates that customers are willing to pay more per unit of mining power, which is linked to higher Bitcoin prices and positive sentiment in the Bitcoin market. The $6.2 million in total computing power sales further supports this notion of rising demand. Normalized weekly price, Bitcoin vs mining machines (Coin Metrics, Bitcoin Magazine) Mining hardware prices are dynamic and typically move in tandem with Bitcoin’s price momentum. This means that in Bitcoin bull markets, the price of mining hardware increases, while in bear markets it decreases. From the chart above, notice how the price peaks of mining hardware coincide with Bitcoin price peaks. The current price of hardware favors Bitcoin miners, but is unfavorable for hardware manufacturers. Just a little digression here: this is why at the current stage of the crypto market cycle one of the important qualitative factors to look out for if you own the stock of one of the Bitcoin mining companies is how the Bitcoin miner is taking advantage of the current low price of mining hardware and expanding its hashrate capacity with newer, more efficient hardware. Though Bitcoin mining hardware prices have generally remained low since the halving, I believe that the recent uptick in ASP will be sustainable in the coming months as Bitcoin moves into full bull trajectory, as the asset has recently broken and now trades way past the $70,000 psychological level and is bound to stay above that level since the post-election rally kicked in, fueled by Donald Trump's victory and his pro-crypto stance. Data by YCharts CAN is beginning to take off here with a 55% price surge this past week. Though it seems every Bitcoin-related stock has seen some surge in the past week because of Bitcoin's own surge, I believe there will be a ceiling for Bitcoin stocks with weak fundamentals, as they may struggle to capitalize only on Bitcoin's momentum for long. Among Bitcoin stocks, Canaan remains undervalued compared to its peer group (of Bitcoin mining companies and mining hardware manufacturers). I believe Canaan has the potential for a higher run, as Bitcoin maintains bullishness, because of the timing of Canaan’s latest hardware release. EV/Sales peer comparison (Seeking Alpha) Also, Canaan’s debt reduction efforts in recent quarters means that it has become less leveraged and now trades at 2.45x EV/Sales. Despite the recent price surge, CAN still trades at lower valuation multiples compared to its peer group. Ebang ( EBON ), a direct peer of CAN, currently trades at 14.78x Price/Sales while facing declining sales ; CAN, on the other hand, has a strong backlog building up for A15 miners and will see boost in sales in the coming quarters, and rightly positioned for the Bitcoin rally, but trades at a 2.05x P/S. Price/Sales peer comparison (Seeking Alpha) Moving forward, CAN’s upside potential hinges on the success of the new A15 series miners as well as Bitcoin's momentum. Orders for the A15 series miners are already strong. Hive Blockchain ordered 6500 A1566 miners from Canaan just last week, in addition to orders from CleanSpark earlier this month. The timing of the launch of the A15 miners (already shipping this quarter, Q4 2024) is well aligned with the current market demand for more efficient miners, and this potentially gives Canaan some market competitive advantage. Below is a table of a head-to-head comparison of Canaan’s latest A15 series miners with BITMAIN'S newly unveiled ANTMINER S21+ series miners. A head-to-head comparison shows that Canaan’s latest miner offering is within the efficiency and performance expectation of industry demand, following the fourth Bitcoin halving. Canaan Avalon Miner A15Pro Canaan Avalon Miner A15XP Bitmain Antminer S21+ (Air-cooled) Bitmain Antminer S21+ (Hydro-cooled) Hashrate (TH/s) 215 200-212 216 319 Power Efficiency (J/T) 16.8 17.8 16.5 15 Delivery Timeline Already shipping Already shipping Shipping in Q1/Q2 2025 Shipping in Q1/Q2 2025 Culled by author from the press releases of the related companies. Risks Bitcoin's volatility remains a risk factor for Bitcoin stocks. In the wake of the U.S. elections and Donald Trump's victory, sentiment have been positive in both the stock and crypto markets - the S&P 500 and Dow have been in positive territory, while Bitcoin has surged over 30% since election night. Bitcoin’s higher surge is indicative of a higher volatility risk. Data by YCharts Another potential risk for companies like Canaan is also linked to the recent elections, where new policies and tariffs from the Trump administration, which historically have been critical of China, adds some uncertainty to the supply chain for China-based manufacturers like Canaan. Bottom Line Canaan is well strategically positioned with the release and timing of its latest A15 series miners, which align with the rising demand for more efficient mining hardware. With a decreasing debt load over the past few quarters, Canaan is now less leveraged and better positioned to capitalize on Bitcoin market opportunities. With a strong order backlog for the A15 miners and a product line that aligns with the current market demand for more efficient mining hardware, Canaan stands to benefit from Bitcoin's upward momentum.
