Moving Out on the Risk Curve With an AI/Crypto Name
Here's why I'm going against my nature and embracing this low-priced concern.
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Most of my recent covered-call trade ideas have involved names you might consider "safe," many with high dividend yields. This has been due to my caution around the overall market, which remains firmly in place. But now I am going to embrace some of the risk-taking, innovation and independence that has helped make the country what it is today.
I am adding the first AI/crypto-related play to my portfolio, and on a stock that had a decent rally late during the holiday-shortened trading week. This is not normally in my nature, however, the company in question is in flux and appears to merit an "exception." In addition, the options against the equity are quite lucrative and provide solid liquidity. This will help me offset a good portion of these risks.
Bit Digital, Inc. BTBT, is a Cayman Islands-domiciled, New York City-headquartered provider of high-performance computing (HPC) data centers that offer colocation and hosting services; and cloud-based HPC graphics processing units (GPU) services for AI and machine learning. The company entered the Bitcoin mining arena in 2020.
Digital asset mining consists of Bitcoin mining. Some of the Bitcoins are converted to Ethereum, which are employed in staking to earn rewards for storing data, processing transactions, and adding new blocks to the blockchain as a validator. The proceeds from staking are reinvested into more mining. Bit Digital earned a gross profit of $16.3 million in 2024 on revenue of $58.6 million from digital asset mining.
Seeing the writing on the wall with increasingly lower margins from mining, the company began pivoting to designing, developing, and operating HPC data centers in late-2023/early-2024, purchasing servers containing Nvidia NVDA GPUs that were loaded into the company’s data center in Iceland and leased to AI application developers. Bit Digital then elected to expand vertically by acquiring data center operator Enovum in 2024. That purchase included a lease on a 4MW Tier-3 data center in Montreal, Canada (MTL 1), which hosts over 5,000 graphics processing units (GPUs) for 14 clients. Two other data centers are scheduled to come online this quarter.
To further its transition to an AI/data center company, last month management announced it was transitioning to a pure-play Ethereum staking and treasury operation, converting all its Bitcoin into ETH and seeking a buyer for its mining business. Bit Digital also purchased a 96-acre facility in North Carolina last month. This will become its flagship AI data center campus. The company believes it will have 32 MW of capacity online by the end of this year with the potential for 80 MW by the end of 2026. Management is also considering simply spinning off its substantially more stable and fast-growing HPC operations – the subsidiary is branded WhiteFiber.
This is obviously a complicated tale with many moving parts, but from a sum-of-the-parts point of view, the stock looks undervalued. Four analyst firms have chimed in with "buy" ratings since management announced its new vision in June, including Northland Securities and Noble Financial, with a median price target slightly above $6 a share.
Even with the rally last week, the stock trades for just under $3. And I can achieve a lower potential entry point with the following covered call strategy.
Option Strategy
This is how one can initiate a holding in BTBT with a covered call order. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the January $3 call strikes, fashion a covered call order with a net debit in the $1.90 to $2.00 a share range (net stock price - option premium).
This strategy provides downside protection of more than 30% with upside potential north of 50% if the stock trades slightly up over the option duration.
At the time of publication, Jensen was long BTBT.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider BTBT to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
