The ‘Halving’ Commences

A Slight Improvement in March

Potential Expansion of AI Contract

Being More Diversified

Joe Gomes

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Financial Services

Capital Markets

Bit Digital Inc.

An Upsized Contract
Yesterday, Bit Digital announced an increase in the scope of the contract with its first customer of its Bit Digital AI business line. Bit Digital will supply the customer with the computational power from an additional 512 GPUs for a period of three years. The upsized contract value with the customer for an aggregate of 2,048 GPUs is now worth more than $50 million of annualized revenue to Bit Digital, up from a previous approximate $35 million of annualized revenue. We would note that under the initial term sheet, Bit Digital agreed to provide up to a maximum of 4,096 GPUs, which would represent over $250 million of revenue of the three year term. While the ultimate size of the customer GPU demand is unknown, the 33% increase in GPUs from the original 1,536 is a positive development, in our view.
Bit Digital has placed a purchase order for 64 servers manufactured by Super Micro Computer, Inc. that are equipped with 512 Nvidia HGX H100 GPUs along with related equipment, which are expected to be delivered to the Company during&nbsp;January 2024. The servers will be deployed in&nbsp;Iceland&nbsp;at the datacenter where the Companyâ€™s existing AI servers are located. To date, 128 AI servers have been successfully installed at the datacenter in&nbsp;Iceland&nbsp;and are undergoing testing. The remaining servers are expected to arrive at the datacenter during&nbsp;January 2024.
The additional servers are costing the Company around $18 million. To finance this transaction, as well as overall growth of the Bit Digital AI business, the Company has executed a sale-leaseback agreement with a third party. Under the agreement, Bit Digital has agreed to sell the third party 96 AI servers, representing 768 GPUs, and lease them back for a period of three years. The lease rate represents a percentage of the total contracted rate for those GPUs and the Company will also pass through pro-rated operational expenses for those units to the third party. While the Company did not disclose the lease costs, the leased machines are likely to have a lower net profit margin than the machines that will be owned. We view the sale/leaseback as a means&nbsp;to accelerate the growth of the contract without Bit Digital having to resort to dilutive financing.
We believe the customer upsizing the contract before the first batch of servers are even through the testing phase speaks positively to the potential of the AI business for Bit Digital. We continue to believe the AI business will provide a non-correlated revenue stream to the Company&#8217;s mining operations. The pipeline of additional AI customers remains strong and we would not be surprised to see additional announcements in the near future.

Bit Digital Inc. (BTBT)

An Upsized Contract

Fundamental Analysis:

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The ‘Halving’ Commences (BTBT)

A Slight Improvement in March (BTBT)

Potential Expansion of AI Contract (BTBT)

Being More Diversified (BTBT)

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