Swense Tech

Best Solution For You

Small Cap Stock Watch: Bitcoin Miner Marathon Strikes Power Deal; Electric Carmaker Faraday Deflates As Short Squeeze Ends

The U.S. stock market is heating up with the dog days of summer. The S&P 500 is up 2.5% this week and 4.7% in all of July after sinking into a bear market in the first half of the year. Small-cap stocks did especially well during the most recent bounce: the Russell 2000 Index gained 3.6% this week.

Some of that outperformance was thanks to Las Vegas-based bitcoin miner Marathon Digital Holdings (MARA). Marathon announced a deal on Monday with power providers Applied Blockchain, Compute North and other servicers to supercharge its computing capacity, and its stock gained 55% this week.

Marathon expects the deal to allow it to achieve its goal of generating 23.3 exahashes per second of power for bitcoin mining, up from 2.1 exahashes at the end of last year and 0.2 in January 2021. That increase would give it a sizable slice of the entire bitcoin mining market, which now generates a total of 193 exahashes per second, according to Blockchain.com.

Applied Blockchain (APLD), Marathon’s largest partner in the deal, will supply Marathon with 90 megawatts of hosting capacity at its mining facility in Texas and at least 110 megawatts at a plant in North Dakota. Dallas-based Applied Blockchain also has a publicly traded stock, and it doubled this week to reach a market capitalization of $211 million.

Since Marathon generates revenue via the bitcoin it mines, its stock is correlated with the cryptocurrency and is still down 63% this year. The company’s 2021 revenue was $150 million, up from just $4.4 million in 2020, and it brought in $51.7 million in the first quarter of this year.

Other big gainers this week include Bloomington, Indiana-based chipmaker SkyWater Technology (SKYT), which announced a partnership with Indiana and Purdue University to build a $1.8 billion factory and rose 67%, and drug-testing company Inotiv (NOTV), which settled with the U.S. Department of Justice and Department of Agriculture to end an animal welfare investigation into a Cumberland, Virginia, facility where one of its subsidiaries bred dogs for lab testing.

These are the 10 U.S.-listed stocks with market capitalizations between $300 million and $2 billion that rose the most this week, according to Factset data.

One of the biggest small-cap losers of the week was Los Angeles-based electric carmaker Faraday Future (FFIE), which nearly tripled in a short squeeze in the first two weeks of July but gave all of that gain back with a 65% loss this week, declining at least 10% on each day. Faraday Future was founded in 2014 as an early competitor to Tesla but has had a turbulent road to the market and still hasn’t sold a single car.

When Faraday Future was running out of cash in November 2017, highly leveraged China real estate developer Evergrande bailed it out with a $2 billion pledge, including $800 million up front, for a 45% preferred equity stake in the company. Evergrande litigated its way out of the rest of the pledge in 2018 in a settlement that reduced its ownership stake to 32%.

Faraday Future went public in a special-purpose acquisition company deal in January 2021–Evergrande still owns 27.9%, according to Factset. It was targeted by short-seller J Capital Research in October, which prompted its board to establish a committee to investigate allegations of inaccurate disclosures. The investigation found that although Faraday Future told investors leading up to its SPAC transaction that it had 14,000 reservations for its FF 91 car, only several hundred of those were paid, with the rest merely indications of interest, the company revealed in an SEC filing in February. Its stock is down 74% since its listing.

Faraday expects to finally launch production of the FF 91 sometime in the current quarter. It hasn’t publicly disclosed pricing, but Barron’s reported last year it plans to sell the car for a whopping $180,000.

These are the companies with market values between $300 million and $2 billion that fared the worst this week, according to Factset.