Canaan's Solid Operations Recognized, Wall Street Investment Firm Rosenblatt Gives "Buy" Rating

Rhea-AI Summary

Canaan (NASDAQ: CAN) was given a Buy rating and a $3 12-month price target by Rosenblatt on Sept 12, 2024. Rosenblatt highlights Canaan's 0.6x EV/Sales valuation vs. a 3.9x peer group multiple and calls the stock significantly undervalued.

Key drivers cited include doubled sequential A14-driven revenue in 2Q24 after the April 2024 Bitcoin halving, a plan to expand captive mining capacity from 0.65 EH/s to 10 EH/s by H1 2025, ruggedized Avalonminer hardware for harsh, low-cost locations, an extensive ASIC patent portfolio, and ongoing strategic partnerships.

Rosenblatt expects a BTC bull market and Canaan's strategy shift toward self-mining and energy-efficient rigs to lift the company’s valuation closer to co-location data center peers.

Positive

• $3 12-month price target and Buy rating from Rosenblatt
• Trading at 0.6x EV/Sales versus 3.9x peer group (undervaluation)
• Management target to expand captive mining to 10 EH/s by H1 2025
• A14 demand doubled revenue sequentially in 2Q24

Negative

• Market concerns about Canaan's profitability
• Perception of Canaan as a hardware-only provider creating valuation discount
• Current captive mining capacity at only 0.65 EH/s before planned expansion

Insights

Equity Research Analyst

Rosenblatt's buy call highlights valuation upside tied to Canaan's self-mining expansion and product demand.

Canaan shows two concrete drivers: an EV/Sales valuation gap (0.6x versus peer group 3.9x) and management's plan to scale captive mining from 0.65EH/s to 10EH/s by H1 2025. The report cites sequential revenue gains from A14 rigs after the April 2024 halving and continued product launches (A15, A16), which the research firm links to higher machine demand in a BTC upcycle.

Key dependencies and risks include successful execution on the planned capacity ramp, sustained demand for ASIC rigs, and conversion of product durability and patents into measurable revenue. The valuation view also rests on multiple assumptions about margin improvement and re-rating toward co-location operators; absent confirmed financials these remain contingent.

Watch the following near-term items: attainment of the H1 2025 10EH/s captive goal, quarter-on-quarter revenue or shipments tied to A15/A16 launches, and any public disclosure of margin trends or partnership agreements that affect captive vs. hardware revenue mix; assess developments over the next 6–12 months.

SINGAPORE, Sept. 12, 2024 /PRNewswire/ -- Canaan Inc. (NASDAQ: CAN) has been recognized for its solid operations by Rosenblatt, a Wall Street investment firm that defines Canaan Inc. as "promising" in light of the upcoming BTC bull market, and initiating with a "buy" rating and a $3 price target for its stock over the next 12 months. The report shows that Canaan is significantly undervalued, trading at 0.6x EV/Sales, compared to 3.9x for its peer group, an undervaluation that stems from concerns about the company's profitability and its perceived role as a hardware provider. However, As Canaan adjusts and continues to execute its strategy of expanding self-mining operations—using internally developed hardware in low-cost areas, and Canaan's star products Avalonminer's product features, resistance to corrosion,  salt and humidity, which helps it mine in low-cost and harsh environments, such as West Texas in the U.S and in the Middle East regions, the company is expected to benefit from bitcoin bull market. Rosenblatt expects its valuation to rise and come closer to the valuations of co-location service data center operators.

The agency's report concludes:

- BTC Bull Market Opportunity to Drive Demand for Mining Machines: As the creator of the world's first Bitcoin ASIC chip miner, Canan's Avalonminer offers superior performance, energy efficiency, and durability. Demand for the A14-based rigs doubled revenue sequentially in 2Q24 following the April 2024 Bitcoin halving event; demand for Avalonminers A15 series and the upcoming A16 series in the product pipeline will continue to rise as Canaan continues to push the boundaries of its products.

- Adjusting Strategy to Focus on Expanding Self-mining Facilities, particularly in North America: Canaan's management plans to increase captive mining capacity in North America from the current 0.65EH/s to 10EH/s by H1 2025, which is considered as an important move to vigorously develop captive mining revenues in a predictable growth market. In addition, Canaan is prioritizing the development of energy-efficient mining solutions. This not only positions the company favorably among environmentally conscious customers, but also enhances its competitive edge in the market.

- Extensive Patent Portfolio: Canaan's strategy for sustainable growth includes a robust patent portfolio, with numerous patents related to ASIC chip technology and HPC. This intellectual property forms the backbone of Canaan's competitive advantage and supports its long-term growth strategy.

- Actively Exploring Strategic Alliances and Partnerships: In addition, Canaan actively collaborates with other technology firms and research institutions to drive innovation and expand its market reach. These partnerships enable Canaan to stay at the forefront of technological advancements and offer cutting-edge solutions to its customers.

- Conclusion: Rosen Blatt recommends owning shares of Canaan based on several key drivers: the rising Bitcoin hash rate and price appreciation, driving heightened demand for Canaan's next-generation mining rigs; Canaan's strategic focus on expanding its more profitable self-mining operations with a focus on North America; and Canaan's ruggedized rigs which enable mining in low-cost, harsh environments.

Rosenblatt is a research and investment banking boutique and agency focused on institutional brokers, providing specialized services in financial services, market structure and research.

In light of the 3-parties' rating report, Canaan believes it offers a promising outlook for the company's future growth potential and a positive recognition of its value. It could potentially contribute to enhancing public investor confidence, maintaining the company's share price, and improving its capital market image, which could in turn facilitate the company's long-term development.

About Canaan Company: Established in 2013, Canaan Inc. (NASDAQ: CAN) is a technology company focusing on ASIC high-performance computing chip design, chip research and development, computing equipment production, and software services. Canaan has extensive experience in chip design and streamlined production in the ASIC field. In 2013, under the leadership of Mr. Nangeng Zhang, founder and CEO, Canaan's founding team shipped to its customers the world's first batch of mining machines incorporating ASIC technology in bitcoin's history under the brand name, Avalon. In 2019, Canaan completed its initial public offering on the Nasdaq Global Market. Contact pr@canaan-creaive.com for more information.

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SOURCE Canaan Inc.

FAQ

What price target did Rosenblatt give Canaan (CAN) and over what timeframe?

Rosenblatt initiated a Buy rating with a $3 price target over the next 12 months.

How did Canaan's A14 miner affect revenue in 2Q24?

Demand for A14-based rigs doubled revenue sequentially in 2Q24 following the April 2024 Bitcoin halving.

What captive mining capacity does Canaan (CAN) plan by H1 2025?

Canaan plans to increase captive mining capacity from 0.65 EH/s to 10 EH/s by H1 2025.

Why does Rosenblatt view CAN as undervalued on EV/Sales?

Rosenblatt cites Canaan trading at 0.6x EV/Sales versus a 3.9x peer multiple, reflecting concerns about profitability and market perception.

How might Canaan's hardware design benefit mining operations in low-cost regions?

Rosenblatt notes Avalonminer rigs offer durability, corrosion resistance, and energy efficiency, enabling mining in harsh, low-cost areas like West Texas and parts of the Middle East.