Is Cipher Mining Inc. (CIFR) a Good NASDAQ Penny Stock to Invest in Right Now?

We recently compiled a list of the 10 Best NASDAQ Penny Stocks to Invest InIn this article, we’ll take a look at where Cipher Mining Inc. (NASDAQ:CIFR) stands in comparison to other NASDAQ penny stocks.

Penny stocks are companies that trade for less than $5 per share. They represent a unique and controversial segment of the financial market. Penny stocks are known for their low market capitalization, limited liquidity, and high volatility. While penny stocks can offer significant returns to investors, they are fraught with risks that often make them unsuitable for the average investor. Additionally, penny stocks are more susceptible to scams such as pump-and-dump schemes, chop stocks, and reverse mergers. We have discussed these scams in detail in our article on the best penny stock books.

Despite the risks, penny stocks also have huge benefits. One of the biggest advantages of penny stocks is their potential for huge profits, even with a small increase in price. For example, a $1 stock increases to $2, which gives a 100% return on investment, making them perfect for investors with a high risk appetite.

Assessment of the favourability of current market conditions for small caps

On July 15, Tom Lee, co-founder and chief research officer of Fundstrat Global Advisors, discussed the recent rotation of funds from large-cap stocks to small-cap stocks and expressed optimism about their potential upside in an interview with CNBC. The Russel 2000 small-cap index rose 11.55% between July 9 and July 16. He believes the current rally, which began last week, could be more substantial than the October-December 2023 rally, which saw a 27% gain in the small-cap index over eight weeks. Lee attributed this rally to increased institutional shorting and further oversold conditions, as well as lower valuations, with median price-to-earnings multiples now at 10 times 2025 earnings. He predicts a 40% upside over ten weeks, further fueled by June CPI data indicating softer inflation, which could lead to the Fed cutting rates in September.

As for the S&P 500, Lee expects July to be positive and sees the broader market index potentially reaching 5700-5800 (up 0.6% to 2.3% from July 16 levels). However, he expects a more pronounced rotation into small caps in August, potentially leading to flat or slightly lower performance for the broader market. He noted that during the previous small-cap rally, large caps underperformed and he expects similar dynamics this time around, given the significant current short positions against small caps. If Lee’s forecast holds true, penny stocks, which account for a significant number of penny stocks, could prove to be attractive investments.

However, looking at the broader market, beyond penny stocks, AI has driven the NASDAQ, but market participants have expressed concerns about a potential AI bubble. This sentiment is echoed by Jefferies analysts, Goldman Sachs’ Jim Covello, Sequoia Capital’s David Cahn, and others. These analysts express skepticism about the economic impact of AI, suggesting that AI may not generate substantial returns to justify its high costs. Jefferies highlighted the difficulties in monetizing AI, noting that global investment in AI servers is expected to reach $400 billion to $500 billion between 2023 and 2025, with high energy costs compounding the challenge. The firm emphasized that significant AI revenues are required for a satisfactory return on investment. While current AI stocks are supported by solid cash flows, unlike during the dotcom bubble, the market could see a correction if monetization targets are not met by 2025 or 2026.

On the positive side, other analysts, such as Goldman Sachs’ Joseph Briggs, are optimistic about AI’s potential. They predict that generative AI could automate a substantial portion of tasks, leading to significant productivity and GDP growth over the next decade. Despite high current spending, some analysts believe that investment in AI is on par with previous technology cycles. They argue that companies that tie AI investment to revenue growth will be rewarded, indicating that the investment could pay off in the long run. While there are short-term challenges, such as chip shortages, the wider adoption of AI could have a positive impact on several sectors, including utilities, in the future. Finally, the potential for AI to transform industries and drive efficiency remains high, with the possibility of future developments that could justify current spending.

Our methodology

For this article, we identified approximately 90 penny stocks listed on NASDAQ with Buy or better analyst ratings and market caps greater than $300 million. We narrowed our list to 10 stocks based on multiple but distinct metrics, such as future growth prospects, valuations and analyst ratings, and comments. We listed the stocks in ascending order of their hedge fund sentiment, which was taken from Insider Monkey’s database of over 900 elite hedge funds.

Why do we care what hedge funds do? The reason is simple: our research has shown that we can beat the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has delivered a 275% return since May 2014, outperforming the benchmark by 150 percentage points (see more details here ).

A close-up of a laptop with a Bitcoin ecosystem monitor running in the background.

Cipher Mining Inc. (NASDAQ:CIFR)

Share price as of July 12: $4.68

Number of hedge fund holders: 37

Cipher Mining Inc. (NASDAQ:CIFR) specializes in establishing and operating large-scale bitcoin mining facilities in the United States. The company develops and operates industrial-scale bitcoin mining data centers. It also deploys specialized computer servers for bitcoin mining and security maintenance of the bitcoin network. Cipher Mining plays a crucial role in the cryptocurrency ecosystem.

It is one of the best NASDAQ penny stocks because the company’s energy cost efficiency is a competitive advantage in the bitcoin mining sector. The company’s strategic focus on securing fixed-price power contracts at exceptionally low rates, averaging around $0.027 per kilowatt-hour, positions it as one of the lowest-cost producers in the industry. This cost-effective setup significantly improves Cipher’s (NASDAQ:CIFR) unit profitability, allowing it to remain profitable even during periods of market volatility.

Cantor Fitzgerald is also bullish on Cipher Mining (NASDAQ:CIFR) for similar reasons. The firm says that all publicly traded bitcoin miners are currently profitable at these levels, but Cipher Mining (NASDAQ:CIFR) stands out for its superior energy cost efficiency, which is significantly lower than its peers. Wall Street analysts have an average price target of $6 on the company’s stock, which represents a 28.2% upside from current levels.

Cipher Mining’s (NASDAQ:CIFR) valuation also looks attractive at the moment as it trades at a forward price-to-earnings ratio of 11.8x, a 51% discount compared to its peers. While we acknowledge that it is a risky investment given that its main product is one of the most volatile asset classes, Cipher Mining (NASDAQ:CIFR) is expected to grow its EPS by 120% this year. Furthermore, it could benefit significantly if the Federal Reserve decides to cut interest rates in the coming months, leading to an increase in investors’ risk appetite.

Furthermore, global interest in cryptocurrencies is growing, with Bitcoin still leading the way. This growing adoption is being driven by factors such as inflation concerns in traditional currencies, institutional adoption, and broader awareness among retail investors. It is estimated that around 300 million people own cryptocurrencies, and this number is expected to reach 1 billion by the end of the decade, according to Boston Consulting Group.

In the first quarter of 2024, 12 hedge funds had stakes in Cipher Mining (NASDAQ:CIFR) worth $19.45 million.

General CIFR is in 10th place on our list of the best NASDAQ penny stocks to buy. You can 10 Best NASDAQ Penny Stocks to Invest In to see the other NASDAQ penny stocks that are on the hedge fund radar. While we recognize CIFR’s potential as an investment, our conviction is based on the belief that AI stocks offer a better chance of delivering higher returns and in a shorter time frame. If you’re looking for an AI stock that shows more promise than CIFR but trades at less than 5x earnings, check out our report on the cheapest AI stocks.

Read more: Analyst Sees New $25 Billion “Opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.

Disclosure: None. This article was originally published on Insider Monkey.