Northern Data Group — Flagship European provider of AI infrastructure

Northern Data is a diversified provider of HPC solutions that operates next-generation, highly energy-efficient data centres across Europe and the US. It has three business segments: Taiga Cloud, Ardent Data Centers and Peak Mining. Having diversified away from being a pure-play cryptocurrency miner, Northern Data is the leading European provider of the latest HPC technology and infrastructure to power the rapidly growing generative AI demand. Its NVIDIA Elite Partner status provides it with access to the latest technology from NVIDIA, including being selected as one of 11 global sovereign AI cloud providers to offer Grace Blackwell cloud services and infrastructure. With c 24,000 NVIDIA GPUs, including 2,000 of the newest H200 chips, Northern Data has Europe’s largest AI cluster. Management is committed to building out the European AI ecosystem, which is poised to deliver rapid growth as more companies adopt generative AI solutions.

With Northern Data having shifted its focus away from being a pure-play cryptocurrency miner, the shape of its P&L has changed over the past two years, with Peak Mining historically accounting for most of the revenue. The FY23 results showed a dip in revenue and profitability as Northern Data invested significantly in its Taiga Cloud business, which should deliver more sustainable recurring revenues at an attractively high margin once its GPU cluster has been fully deployed. Owing to the change in strategy, FY23 and FY24 have been significant years for capital investment, €98.5m (127% of revenue) in FY23 and net capex (after asset hardware sales) guided to be just below €1bn in FY24. To finance this, over the past year Northern Data has raised c €1bn in both debt and equity. To date, Ardent Data Centers has largely supported the Taiga Cloud business. Additionally, the recent purchase of a data centre in Pittsburgh, US, will enable Ardent to generate revenues from external clients through the provision of colocation solutions. We forecast revenues growing to €206.0m in FY24 (FY23: €77.5m) as the roll-out of its GPU cluster generates high recurring revenues. We expect this to accelerate to €526.1m in FY25 and to €613.4m in FY26 as Northern Data improves utilisation and efficiencies, with Taiga Cloud growing from 18% of group revenues in FY23 to 71% in FY26. In terms of profitability, we expect the high-margin Taiga business to significantly benefit the group, and forecast an improvement in the adjusted EBITDA margin from negative 15.8% in FY23 to 27.1% in FY24, before expanding to 53.0% by FY26.

Our discounted cash flow (DCF) based approach suggests a valuation of €43.0 per share based on an FY27–34 revenue CAGR of 6% and an adjusted EBITDA margin of 53.0%, reflecting potentially significant upside to the current share price. Northern Data is trading at a discount to its closest peer, Applied Digital, on EV/EBITDA multiples across FY24 and FY25. However, it is trading at a premium to average EV/EBITDA multiples compared to its mining and HPC peers in FY24.

Northern Data’s business model is dependent on the expected ramp-up in generative AI in Europe, requiring the specialised HPC infrastructure and hardware provided by Northern Data. Although Northern Data’s current customer pipeline is showing high levels of demand, the relative nascency of this industry means that continued demand is inherently uncertain. Other sensitivities include a potential lawsuit over alleged fraud, AI regulation, bitcoin volatility, reliance on a few key suppliers and historical controversies, including the delay to the last two sets of audited accounts.

Northern Data, headquartered and listed in Germany, is a specialist technology company that provides HPC solutions. The group owns and operates energy-efficient data centres across Europe and the US to power its generative AI, colocation and bitcoin mining services. Each centre is strategically situated to maximise sustainability and minimise operating costs, for example via natural cooling methods, while providing the infrastructure to optimise the compute power of the latest processors that power HPC. These factors provide a competitive edge amid tightening data protection and environmental regulation versus other leading colocation providers like Interxion, Equinix and NTT Data, alongside structural tailwinds underpinned by generative AI.

Since listing in 2018 as Northern Bitcoin, the company has transformed from a pure-play cryptocurrency miner into a diversified provider of HPC solutions. Following the merger with Texas-based blockchain infrastructure company Whinstone in 2019, the company rebranded as Northern Data, marking the beginning of its strategic shift. The group has since expanded its data centres across Europe in Sweden, Norway, the Netherlands and Germany, as well as across North America in Georgia, Texas, New York and Quebec, both organically and through acquisitions (see Exhibit 1). This expansion was facilitated using the proceeds from its successful mining operations, as well as those connected to the sale of Whinstone facility for c US$571m.

In August 2023, management outlined its strategy and launched three divisions: Taiga Cloud, Ardent Data Centers and Peak Mining (see Exhibit 2). This change in reporting structure aligns with Northern Data’s commitment to drive HPC in three distinct areas and indicates where the company sees the greatest opportunity in the HPC value chain. While Peak allows investors to continue gaining exposure to the potentially high-growth bitcoin market, Ardent and Taiga provide infrastructure to power the rapidly growing generative AI demand and help to mitigate sensitivity to bitcoin market swings. The company’s entry into HPC is well timed given the dynamic rise of AI in the public consciousness and increasing reliance on cutting-edge data centre infrastructure, which management believes is currently lacking in the market. Overall Northern Data operates out of 11 data centres across a variety of geographies, with 23,904 GPUs and an exahash per second rate of 3.2.

On 4 December 2023, Northern Data announced a €110m investment strategy for Ardent Data Centers, providing the funding for the division to build and operate the company’s next generation of data centres. In January 2024, Ardent announced that it had completed the acquisition of a data centre in the US in Pittsburgh, Pennsylvania, supporting its existing flagship site at Boden, Sweden. Ardent will first support Taiga through the housing of its NVIDIA GPUs in its existing European operations and through third-party colocation. Ardent has an established and growing pipeline of acquisition targets to ensure it has the capacity to house the expected surge in GPU supply, which will power the next wave of European generative AI and other data applications.

Northern Data has a strong bitcoin mining track record, so Peak provides continuity and cash flows that can be recycled to support its growing HPC operations. That said, Northern Data recently announced that it was exploring a potential sale of Peak Mining. This would result in the remaining business being an AI and HPC solutions pure-play business. Although nothing has been agreed yet, management has said it would reinvest any proceeds from the sale into enhancing its AI platform and managed services, as well as for potential acquisitions of data centres and AI GPUs. We believe this will be a key catalyst for the group as it becomes a streamlined and focused business in a rapidly growing industry.

The company believes that Taiga can become one of the top European cloud providers by the end of 2024 and will target start-ups, research institutions and medium-sized enterprises, as a priority, rather than competing directly against leading hyperscalers like Microsoft and Amazon. The company recently announced a number of initiatives, including the acquisition of 2,032 of the latest NVIDIA H200 GPUs, as well as the expansion of its current H100 GPU capacity and a Northern Data AI Accelerator to specifically target and support European start-ups. Northern Data has also been selected by NVIDIA as one of 11 sovereign AI cloud partners to provide the latest GB200 Grace Blackwell services and infrastructure. These initiatives continue to support its ambition after solidifying the company’s status of owning Europe’s largest AI-focused data hardware cluster.

Ardent is a specialist data centre infrastructure provider, aiming to build on Northern Data’s global portfolio of strategically located, highly efficient and sustainable facilities to offer colocation and related services. Currently, the division owns the group’s 40MW Boden facility in Sweden and contracts usage at the Lefdal Mine Datacenter in Norway. The purchase of the 5MW Pittsburgh facility in early 2024, which is being retrofitted to build out capacity to 20MW, shows Northern Data’s ambition in working towards increased capacity for its colocation portfolio in the near term. As this location is being retrofitted for the latest NVIDIA Grace Blackwell infrastructure and technology, 5MW of capacity is expected to be live in Q125, while another 5MW is expected by end FY25 and the remaining 10MW of capacity available in early FY26. During FY23, Northern Data negotiated five colocation agreements for four sites to house Taiga’s NVIDIA H100s. Beyond FY24, management is targeting the acquisition of greenfield and brownfield data centres. By diversifying across regions, the company mitigates risks related to energy supply, regulations and data sovereignty.

Ardent continues to operate to meet the computing needs of its parent company, Northern Data, with a particular focus on the Taiga division. On 4 December 2023, Northern Data announced a €110m investment strategy, including the 41,000 square foot Pittsburgh data centre site for an undisclosed fee. These investments are key to the deployment of Taiga’s NVIDIA H100 GPUs throughout 2024, while investing in data centres that provide specifications consistent with its current portfolio to maintain capacity.

The high power demands of HPC and AI model training present infrastructure challenges, while the development of GPU technology, particularly by NVIDIA, has meant that GPUs are improving in compute power and as such require greater power consumption. Ardent’s infrastructure is designed for next-generation HPC, with sites able to handle up to 100kW per cabinet, while the new Grace Blackwell configurations are expected to require up to 135kW per cabinet, significantly higher than industry averages. To achieve such industry-leading power density, Ardent employs a hybrid of air and liquid cooling methods, including direct-to-chip approaches which concentrate cooling on the chips rather than entire rooms. Management believes this combination can enable a 100% increase in chip power in some cases. Ardent’s data centres run on renewable energy and are carbon neutral, aligning with customer and stakeholder ESG priorities. The focus on renewable energy is particularly pertinent given the focus on the sustainability of EU data centres under the EU Energy Efficiency Directive, which seeks to reduce European energy consumption by 11.7% by 2030 relative to an estimate made in 2020. Under the new framework, data centre operators will have to report key energy efficiency measures, promoting the use of renewable energy.

Once Taiga’s needs have been met, likely in FY25, Ardent will continue to focus on the cloud computing opportunity in Europe, providing infrastructure for companies that want to move their servers off premises to optimise efficiency, sustainability, latency and costs, known as colocation. In our view, there is certainly the potential, given the high level of integration between Taiga and Ardent, for a combination of the two businesses to provide a full-suite, end-to-end data centre and AI cloud service for clients.

Ardent will initially target tier three customers that require single-digit megawatt (MW) power. Northern Data believes demand for compute power will continue growing among this underserved customer base as more companies seek to develop their own HPC and AI solutions. Ardent’s capacity may allow it to expand to tier two customers, which are larger (requiring low-double-digit MWs) but fewer in number.

We assume customers will be offered two contract types:

The M&A landscape is substantial, as enterprises have designed centres with 2N redundancy, meaning they have a minimum of two fully redundant back-up systems. Although this offers reliability and power, the cost trade-off is often too high. This gives Northern Data options to acquire relatively new enterprise centres for quicker market entry. The company is also exploring greenfield options for entirely new sites, which have longer lead times (c 24 months) and higher upfront costs but can be customised to Ardent’s needs with a design that is lower cost in the long run.

For FY24, Ardent is expected to support Taiga Cloud as it grows, and as such management is guiding to revenues of €4–5m, which would reflect robust growth given revenues in FY23 were just €0.5m. The division is expected to be loss making, with the adjusted EBITDA loss between €1m and €3m. We forecast external Ardent revenues of €0.5m in FY24, reflecting the expectation that the Pittsburgh data centre acquired in January 2024 is not yet live and that the business will predominantly support Taiga Cloud and Peak Mining in the full year.

Taiga Cloud’s vision is to be Europe’s first, largest and cleanest generative AI cloud service provider, aiming to democratise access to advanced compute power across organisations of all sizes. Previously the preserve of hyperscalers like Amazon and Google and large multinationals like Adobe, advanced compute power has only been available to those with sufficient resources. Furthermore, the rapid evolution of the AI market has resulted in a surge of demand for HPC infrastructure with the latest technology. Northern Data’s strategy empowers groups including start-ups, research institutions and established companies to scale up their ability to tackle data-heavy applications quickly and independently, paving the way for exciting opportunities in:

As highlighted by news publications at the time, Northern Data identified the need for GPUs to power AI applications more than three years ago, before the widespread adoption of generative AI seen in more recent times. Before Taiga’s launch, Northern Data had built one of the largest European clusters of A100 and A6000 NVIDIA GPUs, establishing a strong position to take advantage of the market opportunity.

The diversity of locations across six data centres (including third-party locations) in Europe, combined with its vast inventory of the latest NVIDIA GPUs, ensures clean, low-latency solutions, as well as data sovereignty. Not only does this support European digital autonomy, but it also makes it easier for companies to comply with EU privacy and data protection laws. Each of Taiga’s locations has a power usage effectiveness (PUE) ratio of less than 1.20 and is powered by renewable energy.

Contract lengths are flexible (ranging from one-month rolling up to 36-month reserved), providing accessible GPU compute without multi-year commitments. With regard to the H100s, management expects to be more focused on longer-term contracts, ranging between three and 24 months at an 80% utilisation rate. The company expects GPU utilisation to exceed 80% in the longer term given the substantial demand for IaaS solutions in the market, which currently outstrips supply. Management anticipates robust cash flow, buoyed by its sizable target customer base of start-ups, many of which may have substantial cash reserves on their balance sheets to pay contracts upfront, given venture capital investment in the space.

To acquire customers, Northern Data will leverage channel partners and programmes like NVIDIA’s Inception Program for Startups and its own AI Accelerator, with plans to expand into more vertical-specific channels, like life sciences research institutions. Through the AI Accelerator, Northern Data will provide start-ups with complementary access to Taiga Cloud’s infrastructure of NVIDIA HGX H100 GPU servers connected with NVIDIA Quantum2 InfiniBand networking, dedicated access to NVIDIA’s Deep Learning Institute programme, mentoring from partners like HPE and Supermicro, and sessions on ESG and navigating the investor landscape.

The company notes that reprovisioning GPUs happens quickly, usually within a day, supporting maximal utilisation. The transition to cloud computing offers Northern Data considerable revenue visibility, as rental income is dictated by GPU costs that vary by model – the introduction of H200 in FY25 will yield the highest potential earnings, followed by the H100, the A100 and then A6000. The configuration of GPUs will be dependent on use case and customer requirements.

Taiga Cloud has been evolving its offering and in May 2024 announced a strategic partnership with VAST Data, a leading AI infrastructure and data platform, which will provide Taiga’s clients with advanced cloud data management solutions. Through VAST’s scalable GPU services, Taiga can provide SMEs and start-ups with access to HPC that may otherwise be capital intensive. VAST reportedly raised US$118m at a US$9.1bn post-money valuation in December 2023, with NVIDIA, Dell, Fidelity Ventures and Goldman Sachs notable investors.

To streamline development, NVIDIA GPUs come with NGC software including services, pretrained models and industry software development kits to accelerate building and deployment. Initially, Taiga will offer IaaS but is well positioned to move up the HPC stack in the near term by offering proprietary or third-party software services to help customers build models, adding potential upsell opportunities. Northern Data highlighted that the division was able to ramp up sales from zero to €15m within 11 months. At the time of the Q324 trading update, the combined Taiga and Ardent business already made up 80% of unaudited revenue at €48m, up from 35% (c €19m) in H124. For the full year, management expects the Taiga division to reach two-thirds of group revenue, up from 18% in FY23. Management’s guided range is for Taiga FY24 revenue to be €120–150m, with adjusted EBITDA of €50–65m, reflecting a margin of 42–43%.

In August 2023, the company announced that it was more than doubling its GPU capabilities by acquiring Damoon, a Tether-controlled Irish shell company, for €400m. The deal completed on 8 January 2024, and saw Northern Data receive 10,000 of the highly in-demand NVIDIA H100 SXM Tensor Core GPUs (c 2% of the 550,000 allocation shipped in 2023), which have a value equal to the consideration price. Management stated that acquiring Damoon was the most effective method to secure the GPUs as quickly as possible.

Northern Data then announced in mid-July 2024 that it would issue 10.7m new shares, equivalent to c 20% of the existing share capital, at a price of €20 per share, to raise gross proceeds of €214m. In the first instance, Tether and ART Beteiligungs Management, a vehicle owned entirely by CEO Aroosh Thillainathan, would subscribe for 6.3m of the new shares, equivalent to c 59% of the raise and corresponding with their existing shareholdings. Subsequently, shareholders that owned more than 50,000 shares would then be invited to participate in the capital raise. Any shares that were not taken up by existing shareholders would then be acquired by Tether and ART Beteiligungs Management. These shares were confirmed at the recent AGM, bringing the total share count to 64.2m.

The H100 SXM is the next iteration of the A100, the processor used to develop platforms like ChatGPT, and has been shown to be 30 times quicker in some instances, according to NVIDIA. Through its partnership with Gigabyte, Northern Data has created innovative server configurations using technologies like InfiniBand networking to enable faster interconnect speeds versus traditional Ethernet. With the acquisition of 2,032 NVIDIA H200 Tensor Core GPUs through a strategic partnership with Supermicro, Northern Data will be the first provider of this hardware in Europe. The H200 has almost double the capacity of its H100 Tensor Core GPU predecessor with 1.4x more memory bandwidth, operating at 4.8 terabytes per second and with 141 gigabytes of HBM3e memory. The H200 has up to twice the inference performance on LLMs while operating at 50% greater energy and cost efficiency compared to the H100.

Furthermore, Northern Data’s position as an elite partner of NVIDIA has meant it has been selected as one of 11 sovereign AI cloud providers to offer NVIDIA Blackwell-based cloud services and infrastructure. The first Blackwell chip to be released is the GB200, which is touted to be 25x more powerful than the H100 using the same power. NVIDIA has said that the GB200 system will be able to support models with 27 trillion parameters. For context, ChatGPT-4, OpenAI’s largest LLM, reportedly has 1.8 trillion parameters. As NVIDIA’s largest European customer, Northern Data looks set to cement its position as a market leader in the European AI cloud space.

Northern Data had deployed 18,624 H100 GPUs at end Q324 and expects to fully deploy its cluster by the end of FY24. Exhibit 5 highlights the expected deployment schedule for FY24. The 2,032 recently acquired H200 GPUs are expected to be deployed in Q424 and generating revenue in FY25. Furthermore, as part of its hardware lifecycle management, Northern Data is de-racking its A100 portfolio and stated on a recent earnings call that it was aiming to generate €20–30m in asset sales from the 2,500 units.

Northern Data is continuing its bitcoin self-mining operations under the name Peak Mining, operating thousands of application-specific integrated circuit (ASIC) miners across four owned locations and one partnership location in Paraguay. The table below shows Peak’s multi-site strategy to diversify geographic risk and vary size. Larger sites can provide operational leverage depending on location, while smaller sites tend to have more favourable power supply contracts. The recently acquired site in Texas has 100MW of mining capacity, but total capacity of 600MW. This leaves Northern Data with 500MW of capacity that could be used for a variety of HPC services.

For its own mining operations, Peak generates revenue by earning bitcoin rewards from the blocks it mines and validating bitcoin transactions.

In addition to earning block rewards, miners can generate revenue through transaction fees paid by the sender of each transaction. The demand for bitcoin correlates to the size of transaction fees, where more demand equates to higher fees. As the total bitcoin supply approaches its limit of 21m and new block rewards decline, transaction fees will become increasingly important for miner revenue.

Mining difficulty can be measured by the network’s overall hash rate, which increases as more miners join the network and deploy faster and more efficient hardware like ASICs, reflecting the greater reward per block. Each miner’s individual hash rate reflects its market share of the total network.

At end FY23, Northern Data had 35,639 ASIC servers installed, equating to a mining capacity of 3.34 exahashes per second (EH/s), or quintillion hashes per second. This represents c 0.8% of the total bitcoin network hash rate. This is considerable given the largest publicly listed bitcoin miner by market cap, Riot Platforms, had an end-FY23 rate of 12.4EH/s.

In FY23, Peak Mining had mined a total of 2,298 bitcoin and sold 2,332 bitcoin, generating €59.7m. We note that the company can hold mined bitcoin on its balance sheet before selling at its discretion, allowing coins sold to exceed newly mined bitcoin. Northern Data will keep bitcoin on its balance sheet if it anticipates a price appreciation higher than the cost of capital of around 15%; otherwise, it sells.

Following the bitcoin halving in April 2024, whereby the revenue (or block subsidy) available to miners immediately fell by 50%, Peak Mining invested US$150m in the latest WhatsMiner models from MicroBT. These miners improve efficiency over its previous hardware, reducing power consumption for the same hash rate and expanding gross margins. Peak has been investing in its capacity, constructing a 30MW plant in North Dakota, which will house the first MicroBT ASIC intake. Additionally, Peak acquired a 300MW Texas site in December 2023 and subsequently purchased an adjacent 300MW site. Together, these two Texas sites alone add 4.1EH/s of capacity, while being powered by the low-cost, renewable energy available in the Load Zone South of the Electric Reliability Council of Texas (ERCOT) grid. No purchase price was disclosed for these sites. In May 2024, the company announced a strategic partnership with Penguin Infrastructure to install 2,860 MicroBT WhatsMiner units at a 100% renewable energy-powered 28MW site in Paraguay.

Northern Data estimates that the new miners and sites will translate into a hash rate for Peak of 7.9EH/s by end FY24 on the back of existing portfolio enhancement (ie replacing existing hardware with more efficient ASICs, allowing for greater uptime). The hash rate expansion is essential as the halving has led to roughly twice the mining difficulty for the same bitcoin rewards. However, other miners also ramped up before the halving, so the market share and revenue impact remains unclear. More importantly, Peak’s end-to-end liquid cooling infrastructure will allow the new miners to overclock, which is the process of increasing the clock speed of computer components above manufacturer specifications to boost performance. This overclocking could potentially improve efficiency by a further 25%, leading to potential margin expansion.

Management recently announced that it was exploring a potential sale of Peak Mining, which would result in Northern Data becoming a pure-play AI and HPC solutions provider. While nothing has been confirmed or agreed, a sale would enable Northern Data to fully focus on HPC solutions as it becomes a European leader in the space. We believe this deal could be carried out relatively swiftly due to consolidation in the crypto mining industry following the halving in April 2024, which resulted in lower levels of profitability for miners, forcing smaller players to leave the market. Proceeds from the sale would enable Northern Data to reinvest in its AI platform, improving its managed services ecosystem while providing capital for acquisitions of potential data centres or additional AI GPUs.

The HPC market has seen a dramatic shift in recent years, primarily due to the emergence of generative AI. The emergence of GPUs as the primary chips to train AI models has enabled breakthroughs in the technology, allowing for neural networks to be trained with billions of parameters. Tightening environmental regulations and growing concerns over data privacy are also shifting Northern Data’s relevant market landscape.

Today, GPUs dominate the AI hardware market, particularly for training complex generative models, which require intense compute power during development. GPU efficiency improvements have been instrumental to the recent rise in generative AI capabilities, including text and image generation. The GPU market is set for substantial growth, with Statista expecting global revenues to grow from US$43.6bn in 2023 to US$274.2bn by 2029 at a CAGR of 36%.

NVIDIA is currently the market leader in GPUs for AI workloads, with Jon Peddie Research estimating that its market share stood at 88% in Q124, up from 80% in the previous quarter. The company’s long history of developing GPUs, alongside the discovery that GPUs were the most efficient chips to train neural networks, established a strong first-mover advantage. NVIDIA has been able to maintain its market leadership by investing the proceeds from its success in hardware innovation and creating software ecosystems like CUDA.

Intel remains strong in data centre technology and CPUs but lags in GPUs. Advanced Micro Devices is gaining CPU share but trails NVIDIA in software maturity for AI. However, both provide lower price points for their processors, improving their competitive positioning.

Google, Amazon and others are developing custom AI chips (tensor processing units), which may have the potential to train neural networks as efficiently as GPUs but at a lower cost. However, most AI software is designed to run on GPUs, creating a re-engineering issue for these proprietary chips. Quantum computing presents a potential long-term competitive headwind but is still far away from practical applications.

Data centres are among the highest consumers of energy, with the International Energy Agency (IEA) estimating that they accounted for 2% of global energy use in 2022. This is expected to continue to rise. Despite the rapid rise in digital technologies over the last 10 years, energy efficiency improvements and greater use of renewable energy sources have moderated the impact of data centres on greenhouse gas emissions. That said, data centres are still responsible for a substantial amount of the world’s total emissions, with the IEA estimating that electricity consumption from data centres could range from 620TWph to 1,050TWph, the equivalent electricity consumption of Japan at the top end. In the US alone, Goldman Sachs estimates that data centres will account for 8% of domestic power consumption by 2030, from just 3% in 2022.

Europe is much further ahead than the US from a regulatory standpoint. The EU’s Energy Efficiency Directive mandates public energy performance reporting for data centres with an installed IT power demand of at least 500kW, to help reach its aim of reducing energy use in Europe by 11.7% by 2030.

With regulators and customers now in alignment, efficiency and disclosure is imperative for data centres. Leading operators like Northern Data are now using innovative techniques like direct-to-chip and other liquid cooling methods, as well as automated load optimisation, to reduce waste and maximise efficiency. As a relatively new entrant, Northern Data stands apart in its ability to provide innovative infrastructure at scale. Many larger legacy players require major investment to replace traditional, outdated infrastructure to meet these modern standards. This puts the company in a strong position to meet rapidly growing demand from customers who value both efficiency and scalability.

We covered the industry landscape, energy consumption and the bitcoin market in detail in our initiation note on Northern Data.

In recent months there have been several deals, coupled with broader newsflow, that underpin Northern Data’s strategic shift in focus to become a diversified HPC provider:

Northern Data has a two-tiered board structure, consisting of a management board and a supervisory board.

Below we profile key members of the executive management team:

The three-person supervisory board is chaired by Dr Tom Oliver Schorling, who was previously a partner at international law firms White & Case and Weil, Gotshal & Manges. He is supported by Bertram Pachaly, a managing director at FIT Talent, and Dr Bernd Hartmann, a managing director at RoskosMeier.

Below we detail several sensitivities that investors should be aware of:

The shape of Northern Data’s income statement has changed as the business has diversified away from a pure-play bitcoin miner to a provider of specialist HPC infrastructure solutions. As shown in Exhibit 8, Peak Mining has historically accounted for more than 80% of group revenue. However, the entry into HPC cloud infrastructure through Taiga Cloud has meant that the latter is expected to make up a more significant share of revenue, as the GPUs are deployed and customer contracts begin to yield returns. The Taiga Cloud business in particular has far more predictable and sustainable recurring revenues, with the majority of the customer contract lengths ranging from 12 to 24 months.

The recently published FY23 audited accounts showcased this shift in revenues. In FY23, Taiga Cloud was just 18% of group revenues, with Peak Mining making up 81% and Ardent Data Centers just 1% as it supported the other two divisions. The recent Q324 trading update indicated strong progress made in FY24, with revenues of €59m representing 235% y-o-y growth. We estimate revenue for the first nine months of FY24 (9M24) at c €114m, with a ramp-up in Q424 to achieve its full-year guidance of €200–240m, as its H100 cluster is fully deployed. Cloud and data centre revenues were €48m in Q324, representing 80% of revenue. However, management expects cloud and data centre revenues to make up two-thirds of group revenue in FY24, with mining revenue at 28% and colocation revenue of 2%. For FY25, cloud is expected to make up an even greater portion of revenue at 75%, with mining reducing to 20% and colocation growing to 5%.

Before the strategic refocusing of the business, Northern Data generated adjusted EBITDA margins relative to total output (including intercompany sales) of 18.2% in FY21 and 17.0% in FY22. However, following the focus on Taiga Cloud and required investment, the group delivered negative company adjusted EBITDA of €5.5m in FY23 (FY22: positive €42.4m). Northern Data achieved adjusted EBITDA of €25m in Q324, highlighting the positive momentum in the year (having achieved adjusted EBITDA break-even in H124). The Q324 results also provide a clear runway for Northern Data achieving its FY24 guidance of €50–80m.

For the Taiga Cloud division, we forecast external revenue of €135m in FY24 based on an average expected charge out price per GPU of €2.70 and the anticipated roll-out schedule updated in the Q324 presentation. Given the timing delay between the GPU deployment and customer billing, we anticipate an average utilisation rate of 46% in FY24. We have assumed blended total opex of 40–50c/kWh, which includes electricity, colocation fees and cost of sales, translating to a margin of 43% in FY24. For FY25, which is the first year in which the H200s will be revenue generating while the H100s are fully deployed, although offset by the de-racking of the A100s, we expect revenue of €380m based on an average utilisation rate of 70%. We expect this utilisation rate to improve to 80% for the H100s and H200s in FY26 as demand ramps up and GPU efficiency is at its greatest. With the current expected GPU cluster fully rolled out, we anticipate revenues of €433m in FY26. For both FY25 and FY26, we expect the EBITDA margin to ramp up as the division benefits from operational leverage once the GPUs are fully deployed, with margins of 77% and 80% respectively.

Our forecasts for Peak Mining expect external revenue to grow to €71m in FY24 as it builds out its capacity to increase its hash rate to 7.9EH/s by end FY24. Our estimates are based on an increase in the global hash rate prior to the halving, as miners built up capacity to offset the drop in expected revenues. Underpinning our forecasts in FY25 and FY26 are assumptions on the bitcoin price, put forward in our CoinShares International research, while for FY24 we have taken the average bitcoin price in 2024.

We expect Northern Data’s share of the global hash rate to grow from 0.6% in FY24 to 1.2% in FY25 as it builds out its capacity to 7.9EH/s by the end of FY24. We expect capacity to remain at 7.9EH/s and as such Northern Data’s share of the global hash rate remains at 1.2% in FY26. This translates to revenue of €71m in FY24, €121m in FY25 and €138m in FY26. We expect the deployment of the MicroBT hardware to improve efficiency as well as capacity, and as such anticipate an improvement in the adjusted EBITDA margin from 41% in FY24 to 50% in FY26.

We expect Ardent Data Centers to contribute a small amount of external revenue in FY24 following the go-live of the 5MW Pittsburgh facility in Q125, resulting in revenues of €0.5m. We expect this to grow to €25.1m in FY25 and €42.7m in FY26 as the benefits of retrofitting the facility come through.

Northern Data has undertaken a number of capital raises over the past few years to fund its investment programme, including €214m gross proceeds from the capital raise announced in July and the €575m shareholder loan facility from Zettahash (an entity 100% owned by Tether), which has been fully drawn down in FY24. This shareholder loan has a coupon of Euribor plus 300bp per year. Below we show the company’s cash flow relative to revenue to provide an idea of the level of investment into the business to date.

As shown in Exhibit 12, in FY22 and FY23 free cash flow relative to revenue lowered following the increased investment in the business, with capex in FY23 at €98.5m, or 127% of revenue. Management previously flagged capex in FY24 of between €800m and €900m. However, with the acquisition of the c 2,000 H200s, we expect Northern Data’s spend to be north of this guidance. Management has also stated that capex net of asset sales should be just below €1bn. Capex has been spent predominantly on the acquisition of NVIDIA GPUs, expansion of the hash rate and investment in HPC infrastructure. Consequently, we anticipate capex in FY24 of €919m. For FY25 and FY26, we expect capex to normalise at a lower level, predominantly focused on maintenance capex once the infrastructure has been deployed and the investment programme completed. Consequently, we forecast an improvement in free cash flow in these years once the company’s GPU portfolio is fully deployed and begins to generate revenue. We expect an improvement in working capital from the negative outflow historically seen as Northern Data is requesting upfront payments from Taiga Cloud customers, improving the receivables position.

The cash position should be lower in FY24 following the elevated level of capex in the year, offset by the €214m raise in July and inclusion of the c €286m cash from the Damoon acquisition, which was included in other receivables in the FY23 results. In total, we forecast that for FY24 cash flow financing should total €858.3m. As we expect Northern Data’s capex post FY24 to be focused on maintenance, we do not currently anticipate a requirement for further financing. However, if Northern Data were to invest further in data centres or hardware equipment to meet customer demand and continue to introduce the latest AI hardware technology, it may require further debt or equity.

We forecast that the strong free cash flow that comes through in FY25 and FY26 will reduce the level of net debt (excluding leases) from €396.4m in FY24 to €23.7m in FY26. We expect the level of leverage (net debt (excluding leases) to adjusted EBITDA) to reduce from 7.2x in FY24 to 0.1x in FY26.

Consequently, we believe the company is well capitalised to execute on its capex plans, with headroom for other potential investment and M&A opportunities. As it is still in the growth phase, Northern Data does not yet pay a dividend, with management’s capital allocation focus on investment back into the business.

Our 10-year DCF valuation uses a WACC of 9.0%, reflecting a cost of equity of 10.0% (10-year German bond yield: 2.2%, beta of 1.50, equity risk premium of 4.6% (source: Damodaran) and a company-specific risk premium of 1.0%), an after-tax cost of debt of 4.6% and a terminal growth rate of 2%. Although on the most recent book value of debt and equity the ratio would be 39.3%, we assume that in the long term this converges more towards management’s target of a 20% debt to equity ratio. We assume the company achieves our revenue estimates out to FY26 before tapering in the mid-term to a 6% CAGR in FY27–34. We also assume EBITDA margins expand from negative 15.8% in FY23 to our FY26 estimate of 53.0% and are maintained at that level for the period.

Our assumptions suggest a value per share of €43.0, reflecting substantial upside of 22% to the current share price of €34.80. We believe the market may be hesitant due to the sensitivities around the potential lawsuit, as well as a knowledge gap surrounding AI infrastructure and future potential demand for GPU usage. In our view, if Northern Data delivers on its financial guidance and meets its EBITDA margin targets over the coming years, there could be substantial potential upside to the current price.

Given Northern Data’s diverse revenue streams, there is only one direct publicly listed competitor in our peer table, Applied Digital Corp. The remainder of our peer table features a range of bitcoin miners and HPC providers, separated to show the various ratings.

On our estimates, Northern Data trades on EV/EBITDA multiples of 32.1x in FY24 and 6.6x in FY25. The fall in valuation multiple in FY25 represents the jump in EBITDA once Taiga Cloud has fully deployed its GPU cluster and is generating high-margin revenue. Many of the cryptocurrency miners trade on higher multiples in FY25 due to their focus as pure-play miners compared to Northern Data’s diversified business model. With regard to its HPC peers, Northern Data trades at a significant premium to mean EV/EBITDA multiples in FY24, before falling to a lower premium in FY25. The lower premium in FY25 reflects the jump in EBITDA in the outer year.

Relative to its closest peer, Applied Digital, which also provides blockchain and HPC colocation services as well as GPU cloud services, despite our estimates showing a higher sales growth and EBITDA margin in FY24, the company trades on a discount on EV/EBITDA multiples of 12% in FY24 and 49% in FY25.

CoreWeave, a private peer of Northern Data, reportedly raised US$1.1bn in equity and a further US$7.5bn this year, which valued it at US$19.1bn, with a number of high-quality investors including Blackstone, Coatue, Carlyle, BlackRock and Fidelity. This recent deal flow highlights the continued investor interest in AI infrastructure and would positively underpin a potential listing of a combined Taiga Cloud/Ardent Data Centers business in the US, which Bloomberg reported earlier this year.