This Crypto Mining Stock Just Went Parabolic, Up 20% Today

The overarching investment thesis surrounding cryptocurrency mining stocks, such as Canaan (NASDAQ: CAN), is shifting rapidly. Once viewed as leveraged pure-plays on the price appreciation potential of top tokens, such as Bitcoin, mining-related stocks like Canaan have since benefited from other key investment theses surrounding this sector.

With the rise of artificial intelligence (AI), machine learning, and other compute-intensive innovative technologies, the high-performance mining systems Canaan sells mainly to other crypto miners in the market have become a highly sought-after commodity. The idea that these can be used in various ways, either to mine Bitcoin or other proof-of-work cryptocurrencies or be utilized for other resource-intensive computing tasks, has provided an important secondary catalyst for this sector overall.

That said, expectations that future AI spending may be called into question (given the enormity of current spending levels and questions about who will assume this debt in the future) have led investors to scrutinize stocks tied to the AI trade more closely.

With that said, let's dive into why Canaan is surging today, up 20.2% from yesterday's close (and up another 1% after hours, at the time of writing).

Robust earnings are shifting the narrative around Canaan

Source: Getty Images.

Canaan reported its third-quarter earnings before the bell today, and the market clearly cheered these results.

Despite a plunging Bitcoin price (which dipped below $90,000 for the first time in months yesterday), Canaan's third-quarter revenue skyrocketed. The company reported year-over-year top-line growth of 104%, shattering expectations, and a gross profit of $16.6 million for the quarter. I'd argue that it was this earnings number that really shocked investors, considering Canaan lost $21.5 million in the same quarter the previous year and remains unprofitable on a trailing twelve-month basis.

The vast majority of the company's revenue is derived from selling crypto miners ($118.6 million of the $150.5 million reported), although Bitcoin mining revenues accounted for roughly 20% of the company's total revenues. Also important to investors is the fact that Canaan's Bitcoin mining revenue was up more than 240% on a year-over-year basis. Thus, declining Bitcoin prices don't appear to be affecting Canaan to the same extent as some of its peers.

If the crypto mining company can continue to produce results like these in the coming quarters, it's entirely possible my overarching bearish thesis around this stock could be wrong. Hey, I've been wrong before. For now, at least, the market appears to be warming up to the idea that CAN stock has become oversold, and that's understandable given these impressive results.

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.