Canaan, Inc. (CAN) is a leading provider of supercomputing solutions and integrated circuit (IC) final system products, renowned for having invented the world’s first ASIC-powered bitcoin mining machine in 2013 and radically catalyzing the growth of a computationally advanced bitcoin mining sector. The Hangzhou, China-based company is the second largest designer and manufacturer of bitcoin mining machines globally and continues to expand its suite of advanced hardware offerings, exploring opportunities across emerging technologies.

Bitcoin soared exponentially last year and is up more than six-fold since its low in March 2020. After breaking through the key $20,000 level for the first time on December 16, 2020, the leading cryptocurrency, bitcoin, has been advancing to unprecedented highs, breaching the $34,000 mark yesterday. Consequently, CAN’s share price has jumped 57.3% in the past week.

However, despite the spike in the bitcoin prices, CAN’s  stock lost 2.8% last year. The uncertainty related to CAN’s financial health and the stock’s continued momentum based on several factors have made our proprietary rating system rate it as “Neutral.”

Here is how our proprietary POWR Ratings system evaluates CAN:

Trade Grade: C

CAN is currently trading higher than its 50-day and 200-day moving averages of $3.47 and $2.91, respectively. This indicates that the stock is in an uptrend. In fact, the stock’s 217.1% return over the past three months reflects  solid short-term bullishness.

However, CAN’s last reported quarterly results failed to impress the Street. The company delivered total net revenues of $24 million, declining 75.7% year-over-year and 8.5% sequentially. The decrease was driven primarily by  decreases in total computing power sold and average selling price per Thash/s during the quarter. CAN reported a loss of $0.54 per share, more than quadruple the quarter-ago loss of $0.10 per share.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , CAN is not well positioned. The stock is currently trading 31.8% below its 52-week high of $8.69.

In 2018, CAN achieved major technological breakthroughs to launch K210, the world’s first-ever RISC-V-based edge artificial intelligence (AI) chip. The company recently launched second-generation AI chip Kanzhi K510 after two years of development. The chip is positioned in the mid- to high-end market and is an edge-side AI chip fully oriented to application scenarios. Compared with the first-generation of AI-chips, the computing power of this chip is three times more powerful.

According to CAN’s management, , “During the third quarter of 2020, we remained undeterred by the pandemic to strengthen our research and development (R&D) capabilities, expand our AI business, and execute new business initiatives.” However, R&D expenses in the third quarter of 2020 came in at $4.7 million, representing a year-over-year decrease of 15.8%. “With new generations of mining machines and AI chips in the pipeline, we are confident that the enhanced performance of our new products will continue to bolster our competitive advantages and solidify our market leadership going forward.”

Peer Grade: D

CAN is currently rated #23 of 30 stocks in the Technology – Hardware group. Other popular stocks in this group are Synopsys, Inc. (SNPS), Cadence Design Systems, Inc. (CDNS) and Digi International Inc. (DGII). While CDNS has gained 92.1% in the past year, SNPS and DGII have returned 81.2% and 7.4%, respectively, over this period.

Industry Rank: A

CAN is part of the StockNews.com Technology – Hardware industry, which is ranked #2 of 123 industries. The companies in this industry manufacture PCs, cameras, streaming devices, and related accessories. The profitability of individual companies depends on technological innovation and anticipating customer requirements. Since the onset of the coronavirus pandemic, the industry has witnessed  accelerated growth in demand due to the work-and-learn-from-home trend. Given the potential of a growing dependence of benefits on technology, the industry should keep growing in 2021.

Overall POWR Rating: C (Neutral)

Despite an impressive bitcoin rally and CAN’s solid short-term bullishness, the stock is rated a “Neutral” due to its terrible financial performance and overall weak global IC market, as determined by the four components of our overall POWR Rating.

Bottom Line

Bitcoin price has been on a massive upswing since the onset of the pandemic last year. But CAN has not been able to follow Bitcoin’s trajectory as macroeconomic uncertainties continued to impact the production capacity of the global IC industry. However, the demand for mining machines in the market rebounded during the third and the fourth quarter of 2020, and CAN received many pre-sale orders, the delivery of which has already begun.

Nangeng Zhang, CAN’s CEO, recently stated that innovating technologies such as growth of Decentralized Finance (DeFi) and quantum computing are shaping a new trajectory for the future of bitcoin mining. Another innovation is the blockchain. Some experts believe that crypto will have the same impact on money that the Internet has had on information. Hence, whether or not the ongoing bitcoin price rally will see continued momentum this year, we’ve continued to see the network hash rate surging in parallel with growing demand for bitcoin mining machines. We think this outlook might keep CAN’s price momentum alive.

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CAN shares were trading at $6.30 per share on Monday afternoon, up $0.37 (+6.24%). Year-to-date, CAN has gained 6.24%, versus a -2.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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