Being the largest Bitcoin miner isn’t feasible for every company, but excelling in specialized areas while maintaining profitability should be a key focus. This philosophy underpins my primary reason for diving deep into Bit Digital (BTBT).
Prior to the halving, we saw many Bitcoin miners chase hash rate expansion aggressively and this trend has continued. Meanwhile, some miners are diversifying into the HPC (High-Performance Computing) and AI sector. Bit Digital first caught my attention during my analysis of public miners’ AI ventures. Unlike Core Scientific’s CoreWeave, which has attracted significant media attention, Bit Digital’s HPC business has been flying under the radar, yet it remains highly profitable. Their HPC revenue reached $12.497M, making up 43.17% of their total revenue – leading the AI charge among its peers.
With their recent acquisition of Enovum Data Centers and ongoing expansion in the AI space, Bit Digital is securing predictable revenue through long-term contracts. The shift in focus well positions the company to maintain profitability across Bitcoin market cycles.
A Deeper Look into Bit Digital’s Operation
Bit Digital currently ranks #14 on our Bitcoin Mining Stocks by Market Cap list, boasting an active hash rate of 2.43 EH/s as of September 30, 2024. Its operational footprint includes data centers in the United States, Canada, and Iceland, with approximately 86% of its energy coming from carbon-free sources.
Bitcoin Mining Operations: Profitable but No Longer the Sole Focus
Bit Digital’s Bitcoin mining operation remains a core part of its business. According to Q2 2024 filings, mining revenue reached $16.079M, a 80.43% YoY increase driven by an improved Bitcoin price. Mining contributed 55.54% of their total revenue, a 43.07% decrease compared to the same period last year. The halving of Bitcoin block rewards in April 2024, along with increasing network difficulty, has significantly impacted profitability.
Bit Digital’s mining expansion strategy, according to CEO Sam Tabar, is “opportunistic, rather than growth at any cost”. This more cautious approach reflects the company's focus on business diversification to limit exposure to Bitcoin’s volatility.
Ethereum Exposure: A Unique Differentiator
Bit Digital has significant Ethereum (ETH) holdings, an asset many other miners do not hold. Not only that, the company accumulates extra ETH by selling a portion of its mined Bitcoin and reinvesting it into Ethereum. As of September 30, 2024, Bit Digital holds 27,389 ETH, valued at approximately $71.3M.
With Ethereum's consensus switch from Proof-of-Work (PoW) to Proof-of-Stake (PoS), Bit Digital’s Ethereum exposure provides a unique yield opportunity. During Q2, 2024, the company generated 109.4 ETH in staking rewards. This gives investors of Bit Digital indirect exposure to both Bitcoin and Ethereum, offering a more diversified investment than a typical Bitcoin mining company.
The launch of the spot Ethereum ETFs in mid-2024 has made companies with ETH holdings more attractive to those who seek diversified exposure without holding crypto directly. With their ETH staking strategy, Bit Digital is theoretically an alternative to spot ETH ETFs for investors who want to generate yield from the asset. However, it is worth noting that Ethereum’s price can be as volatile as Bitcoin, and many seasoned Bitcoin investors do not believe in ETH’s long-term value.
HPC and AI: The New Growth Engine
Bit Digital’s strategic pivot into the HPC and AI sector, which started in late 2023, has proven highly profitable. Its AI business began earning revenue in January, with a three year contract for $150M. The company plans to subsequently upsize that by $42M per year. As of Q2 2024, HPC services contributed $12.5M in revenue, representing 43.17% of total company revenue. This is a massive (+54.3%) leap from Q1 2024, where the segment contributed $8.1M.
Major Deals: Boosteroid and Beyond
In August 2024, Bit Digital announced a binding term sheet with Boosteroid, the world’s third-largest cloud gaming provider, for a potential revenue opportunity exceeding $700M over five years. Boosteroid plans to use Bit Digital’s infrastructure to power its cloud gaming services in Mercedes vehicles as of 2025 onwards, starting with an initial test order generating around $2.6M in revenue for 2024. The contract is expected to scale significantly over the following years, with Bit Digital providing options to increase GPU server deployment. By year two, Bit Digital aims to ramp up the deployment, positioning itself as a key infrastructure provider in this rapidly growing market.
A quick note: Bit Digital’s entry into a Master Service Agreement (MSA) is contingent upon further due diligence on Boosteroid, customary legal and business reviews, internal approvals, and the execution of a mutually acceptable MSA. In short, signing a binding term sheet is a preliminary but legally enforceable step toward a final, more detailed contract.
Acquisition of Enovum Data Centers: Vertical Integration
On October 14, 2024, Bit Digital completed the acquisition of Enovum, a Tier-3 data center, for CAD $62.8M (paid in CAD $56M cash and approximately 1.62 million shares). The 4 MW facility, with 288 MW expansion potential, marks Bit Digital’s first owned data center, allowing the company to reduce reliance on third-party hosting and improve margins.
The acquisition also brings an experienced team with expertise in operating Tier-3 data centers, further positioning the company to offer a complete GPU cloud solution. By purchasing an existing facility, Bit Digital avoids the time and costs associated with building a data center from the ground up, improving its ability to meet growing demand for HPC services. With zero debt, zero unfunded miner purchase obligations, and $222M total liquidity (as of Sep 30, 2024), Bit Digital has flexibility in pursuing other growth opportunities.
Valuation: A Balanced Growth Play with Stable Revenue Projections
Despite its rapid growth, Bit Digital remains attractively valued when compared to broader technology and HPC sectors. Here’s a breakdown of the valuation based on forward projections:
- Current market cap: $591M
- HPC revenue (projected for 2025): $100M annually (with Boosteroid and other client contracts)
- BTC mining + ETH staking (annualized based on Q2): $65.8M
Assuming Bit Digital hits its $165.8M in annualized sales (combined BTC mining, ETH staking, and HPC revenue), the stock is currently trading at just 3.56x forward P/S ratio. This is in line with the info-tech sector (2x~10x) but well below high-growth technology companies like Nvidia or Microsoft, which trade at far higher multiples (>10x). The stock’s price-to-sales ratio of 3.56x makes it an attractive option for investors seeking growth at a reasonable price.
Final Thoughts
Bit Digital’s strategy is not just about surviving market volatility but thriving through diversification. By expanding into high-margin sectors like HPC and maintaining exposure to both Bitcoin and Ethereum, the company has positioned itself to generate stable, predictable revenue streams while retaining the ability to capitalize on favorable Bitcoin prices.
Despite the fundamental risks associated with crypto and the stock market, Bit Digital offers a compelling blend of growth, diversification, and valuation that make it an attractive option for investors seeking exposure to both crypto and the AI-driven HPC sector. Given the available public information, I think Bit Digital will be one of the more resilient players in the Bitcoin mining space.
Disclaimer: The views expressed in this article are my own and are based on publicly available information. This content is intended for informational purposes only and should not be construed as investment advice. Readers are encouraged to conduct their own research before making any investment decisions. Past performance is not indicative of future results. No recommendation or advice is being provided as to the suitability of any investment for any particular investor.
