AI Data Center Conversions And Co Location Contracts Will Support Long Term Opportunity

Catalysts

About Digi Power X

Digi Power X develops and operates Tier 3 AI data center infrastructure, co-location services and GPU-as-a-Service, supported by owned power assets and digital asset holdings.

What are the underlying business or industry changes driving this perspective?

• Conversion of existing power assets into Tier 3 AI data centers through the ARMS 200 platform positions the company to supply compute capacity into a market where AI workloads are growing quickly, which can support higher utilization of its close to 200 megawatts of 2026 power availability and feed into revenue and EBITDA.
• Launch of the NeoCloudz GPU-as-a-Service platform in January 2026 targets AI developers, start-ups and research institutions that may be priced out of larger cloud providers. This could add a recurring, higher margin revenue stream and support net margins as utilization ramps.
• Co-location focus, with management citing expected 5 to 15 year customer contracts and pricing in the range of US$140 to US$150 per kilowatt hour per month, gives the potential for multi year visibility on AI infrastructure demand, which can influence revenue stability and earnings quality.
• Partnership with Super Micro and alignment with NVIDIA B200 and B300 GPUs allows Digi Power X to plug into ongoing demand for high performance AI hardware while keeping SG&A relatively low, which may support operating leverage and earnings as capacity is filled.
• A debt free balance sheet, working capital of US$15 million and more than US$90 million in cash, Bitcoin and Ethereum, equal to more than one third of the company market cap, give financial flexibility to fund the 55 megawatt 2026 AI build out without interest burden, which can affect future net margins and earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Digi Power X's revenue will grow by 137.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -99.0% today to 3.2% in 3 years time.
• Analysts expect earnings to reach $13.8 million (and earnings per share of -$0.05) by about August 2029, up from -$31.4 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 93.3x on those 2029 earnings, up from -11.5x today. This future PE is greater than the current PE for the US Software industry at 32.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.53%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• AI infrastructure demand may not materialize at the scale implied by plans for 55 megawatts of Tier 3 deployment by Q4 2026 and up to 200 megawatts of additional power anticipated in 2028. This could leave capacity underutilized and limit the uplift in revenue and EBITDA.
• Customer concentration and contract risk around long-dated 5 to 15 year co-location agreements could become a headwind if negotiations stall, pricing weakens from the US$140 to US$150 per kilowatt hour per month range, or counterparties default. These developments would affect revenue visibility, net margins and earnings quality.
• Dependence on Super Micro and NVIDIA B200 and B300 GPU supply for both ARMS 200 modules and the NeoCloudz platform creates execution risk if hardware availability, pricing or partnership terms change. This could delay AI deployments and pressure future revenue and net margins.
• Exposure to Bitcoin and Ethereum, currently valued at US$15.4 million with additional holdings mentioned on the Q&A, ties part of the balance sheet and income streams to crypto asset pricing. Adverse long-term moves in digital assets could reduce liquidity, constrain funding for CapEx and weigh on earnings.
• The plan to remain debt free while funding AI data center conversions and GPU infrastructure largely from the more than US$90 million in cash and digital assets may face pressure if build-out costs rise, project timelines extend or AI and energy revenues underperform. This could compress net margins and earnings if external financing is eventually required.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $9.0 for Digi Power X based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $423.9 million, earnings will come to $13.8 million, and it would be trading on a PE ratio of 93.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of $3.97, the analyst price target of $9.0 is 55.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.