Bitfarms Ltd. BITF, known for its crypto-mining business, saw its shares soar more than 400% in the past six months. So far this year, BITF stock has outperformed the Technology Services industry (+194.6% vs +34.8%). This has led investors to question whether it is a good time to invest in BITF or if they are just chasing hype. Let’s examine.

What’s Behind Bitfarms’ Stellar Rally?

Bitfarms’ Bitcoin (BTC) mining profit margins were adversely impacted by the BTC halving. The reduced margins prompted Bitfarms to shift its focus to high-performance computing (HPC) and artificial intelligence (AI) data centers, which are expanding rapidly and have the potential to generate higher profits than BTC mining. This strategic move from BTC mining to AI data centers was welcomed by investors, helping Bitfarms’ share prices gain momentum.

The recent agreement between OpenAI and Advanced Micro Devices, Inc. AMD boosted sentiment in the HPC/AI infrastructure space and positively impacted the BITF stock. OpenAI has arranged to deploy 6 gigawatts of AMD’s graphics processing units (GPUs) to support its AI infrastructure, with the first gigawatt to be deployed by 2026.

Additionally, Bitfarms increased its convertible note offerings from $300 million to $500 million amid strong demand. CEO Ben Gagnon mentioned that this funding will speed up the development of Bitfarms’ HPC/AI infrastructure projects.

Meanwhile, as a BTC mining company, Bitfarms’ shares rose along with the increase in BTC prices. The BTC price reached an all-time high of $125,000 this year and has gained 14.8% year to date. Renewed interest from institutional investors, expectations of Federal Reserve interest rate cuts and a weakening U.S. dollar have helped push up the price of BTC.

Should You Buy Bitfarms Stock Under $5 After the Huge Rally?

Bitfarms’ tactical shift from BTC mining to AI data centers and a consistent BTC rally bode well for the BITF stock in the long run. This should entice stakeholders to stay invested in the BITF stock.

However, for new investors, investing in the BITF stock may prove risky despite the recent surge. This is because BTC itself is speculative, and its future price movement is dependent on the inconsistent regulatory environment.

Moreover, Bitfarms’ business is not yet profitable. It reported a net loss of $29 million in the second quarter compared with a net loss of $27 million a year ago, citing investor.bitfarms.com. Bitfarms has struggled to deliver profits consistently in comparison to its industry peers, raising doubts about its growth prospects. Its net profit margin is a negative 52.44%, while the industry’s is a positive 0.62%.

Story Continues

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Therefore, it’s prudent for new investors to avoid buying the BITF stock under $5 as the fundamentals aren’t keeping pace with the bullish trajectory. Currently, Bitfarms has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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