The surge in Bitcoin's value, with an over 100% increase this year, has fueled Bitcoin mining stocks such as Riot Platforms (NASDAQ:RIOT) and Marathon Digital (NASDAQ:MARA) Holdings, which have seen annual gains exceed 180%. Amidst this bullish trend, a less obvious industry shift is taking place. Bitcoin miners, including Bit Digital and Hive Digital Technologies, are beginning to repurpose their existing infrastructure for artificial intelligence (AI) applications, indicating a significant change in the industry's direction.
Hive Digital is transforming 38,000 Nvidia (NASDAQ:NVDA) data center GPUs, previously used for crypto mining, into a cloud service for AI clients. Similarly, Bit Digital is committing $35 million towards new GPUs to serve AI clients, aiming to support its primary mining operation.
While the current profitability of Bitcoin mining might make this shift seem questionable, the cyclical nature of the Bitcoin mining industry and its high dependence on Bitcoin's price necessitates this strategic transformation. To mitigate risk during periods when Bitcoin's value drops, miners are diversifying by offering IT services to third-party clients.
The upcoming Bitcoin halving event in April 2024, which will reduce the reward for mining Bitcoin by half, further accelerates this strategic shift. Selling AI computing power can be highly profitable; Bit Digital anticipates that a new AI computing contract could generate up to $250 million over three years. Hive Digital Technologies claims its new computing venture generates 15 times more revenue per megawatt than Bitcoin.
Investors are advised to exercise caution when investing in companies undergoing transformations to tap into emerging technologies. Detailed due diligence is essential, scrutinizing the revenue from noncore businesses and evaluating the feasibility of future growth projections.
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