Research: Edison Group

				Spotlight - Initiation
Northern Data Group			19 December 2023
						Tech hardware and equipment

Driving AI and data centre technology

Northern Data Group is a specialist provider of high-performance computing (HPC) infrastructure solutions. By leveraging a successful cryptocurrency mining heritage to fund global growth, the group has been able to expand into generative artificial intelligence (AI) cloud services and liquid-cooled data centre infrastructure. The European generative AI opportunity is substantial, where demand has surged but compute power remains limited. As the owner of Europe's largest AI data hardware cluster, and requisite specialised data centre housing, Northern Data can enable democratised access to this transformative technology. With its elite partnerships and access to scarce hardware, the group is positioned to capture underserved demand in the AI space for hardware and housing.

Three new divisions define strategy

Northern Data has pivoted from a pure cryptocurrency miner into a diversified provider of HPC infrastructure solutions, through its three business divisions: Taiga Cloud, Ardent Data Centers and Peak Mining. Taiga aims to democratise access to AI compute power, providing the hardware that start-ups, researchers and medium- sized organisations need to power generative AI models and cloud services. In 2023, Northern Data invested €730m to acquire NVIDIA's latest H100 Tensor Core GPUs. These are in limited supply and are 30 times more powerful than the GPUs used for training systems like ChatGPT, establishing a competitive edge. Ardent is looking to expand the group's portfolio of state-of-the-art,liquid-cooled data centres to initially house Taiga's NVIDIA hardware and then provide colocation services to the market. Peak will continue Northern Data's bitcoin mining operations.

Key milestones to demonstrate value

NVIDIA has confirmed that Northern Data owns Europe's largest A100 and H100 GPU cluster and that Taiga is an elite NVIDIA partner/cloud service provider. This should enable Taiga to effectively capture demand by providing infrastructure as a service (IaaS) in 2024, then successfully upsell additional managed services and software from 2025. Ardent's European data centres offer innovative, energy efficient and liquid-cooled environments, reducing latency and providing a compelling solution amid tightening data and environmental regulations. For Peak Mining, maintaining or growing market share will be key, particularly given the upcoming bitcoin halving, which the market expects around April 2024. Its US$150m investment in the latest bitcoin miners should support its positioning.

Valuation: Substantial upside if milestones are met

Northern Data has undergone significant change, causing internal disruption with FY22 results yet to be released. We are therefore unable to provide forecasts yet. Management guides to sales of €65-75m and an adjusted EBITDA loss of €5-20m in FY23, followed by €200-240m sales and €50-80m adjusted EBITDA in FY24, respectively. Management also sees FY25 sales and adjusted EBITDA potential of €520-570m and €300-350m, respectively. Later we provide several scenarios once full deployment of its hardware is achieved, with our base case indicating potential revenue of €572m, at the top-end of management's FY25 guidance.

Price	€23.5
Market cap	€745m

Share price graph

Share details

Code	NB2
Listing	Frankfurt
Shares in issue	31.7m
Business description

Northern Data is a German-listed company, operating highly energy-efficient data centres across Europe and the US. The group is pivoting from a pure-play cryptocurrency miner into a diversified provider of high- performance computing solutions. Its updated strategy was marked with the launch of three new divisions: Peak Mining, Ardent Data Centers and Taiga Cloud, with each targeting a different area of the value chain.

Bull

• Data centres with strong efficiency, power and sustainability credentials, which are well equipped to face tightening regulation within the European landscape.
• Large inventory of the latest NVIDIA GPUs, which are in short supply, positioning the group to take advantage of the fast-evolving AI space.
• Strong track record in bitcoin mining provides consistency alongside new strategy.

Bear

• Unproven in the cloud computing space, creating execution risk without a track record of performance.
• Bitcoin price is highly volatile, creating cash flow lumpiness in the crypto mining division.
• Controversy, particularly around disclosures and reporting, creates uncertainty.

Analysts

Max Hayes	[phone]
Katherine Thompson	[phone]
Milosz Papst	[phone]

[e-mail] Edison profile page

Northern Data Group is a research client of Edison Investment Research Limited

Company description: Driving European generative AI

Northern Data, headquartered and listed in Germany, is a specialist technology company that provides HPC infrastructure solutions. The group owns and operates energy-efficient data centres across Europe and the US to power its bitcoin mining, generative AI and co-location 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 to 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 North America in Georgia, Texas, New York and Quebec, both organically and through acquisition (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. We note that the group reported FY21 total output of €492m (revenue: €189.9m and other income of €303.0m relating to the Whinstone disposal) and adjusted EBITDA of €325m at a 66% margin. Northern Data's FY22 preliminary results indicate revenue of €195m and adjusted EBITDA of €40m at a margin of c 21%.

Exhibit 1: Northern Data deal summary, 2019-23

	Target		Acquisition date		Consideration		Rationale
	Acquisitions
	Whinstone	November 2019	N/A	To build foundational infrastructure to run AI and cloud-
							based applications.
	Kelvin Emtech	April 2020	83k shares with three-yearlock-up	Provide additional compute power and expand North
					(c US$4.2m)	American data centre footprint.
	Hydro66	January 2021	€4m cash	Expands Northern Data's green data centres in Europe
					€21m shares	(now its Boden facility).
	Decentric Europe	August 2021	€195m cash	Further expansion of European GPU hardware, powered
					2.3m new shares, c €170m	by 100% renewable energy.
	Bitfield	September 2021	Stock-for-stock, total value €400m, 5.1m shares	Expands its bitcoin mining operations in the US and
							Canada.
	Damoon*	September 2023	€400m shares and convertible bond issue	Acquired €400m worth of NVIDIA 10,000 H100 SXM Tensor
							Core GPUs.
	Disposals
	Whinstone	April 2021	Sold to Riot Platforms for US$80m cash	Move away from megasites to larger number of smaller
					11.8m new Riot shares, c US$571m	data centres to drive HPC strategy.

Source: Northern Data Group. Note: *Pending regulatory approval, expected Q124 at the latest. Further details on Damoon acquisition under new business lines section.

In August 2023, management outlined its strategy with the launch of three divisions: Taiga Cloud, Ardent Data Centers and Peak Mining (see Exhibit 2). This change in reporting structure aligns with the commitment to drive HPC in three distinct areas, as well as the group's expectation for revenue to be shown under these segments in its FY23 results.

Northern Data Group | 19 December 2023

2

Exhibit 2: Divisional breakdown, indicating Northern Data's strategic direction

Source: Northern Data

On 4 December, 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. Ardent will first confirm that Taiga has the infrastructure to house its intake of 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.

The company believes that Taiga can become one of the top European cloud providers in 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. Northern Data's recent acquisitions of the latest NVIDIA H100 GPUs (see H100 acquisition section) will support this ambition after solidifying the company's status of owning Europe's largest AI-focused data hardware cluster.

The creation of these divisions indicates where Northern Data sees the greatest opportunity in the HPC value chain. Peak allows investors to continue gaining exposure to the potentially high-growth bitcoin market, while Ardent and Taiga help mitigate sensitivity to bitcoin market swings. The company's entry into HPC is well-timed given the dynamic rise of AI and increasing reliance on cutting-edge data centre infrastructure, which management believes is currently lacking in the market.

New business lines indicate clear strategic focus

Since its inception, Northern Data's primary focus has been bitcoin mining, with 2021 a transformational year supported by record-high cryptocurrency prices. Leveraging its strong balance sheet, bolstered by the sale of the Whinstone facility to Riot Platforms (see Exhibit 1), the group has invested in the expansion of its data centres across Europe and North America, equipping them with the latest technology to drive efficiency and performance. Following this period, NVIDIA confirmed that Northern Data owned Europe's largest GPU cluster, positioning it to transition seamlessly into the AI market.

Management guides to FY23 revenue of €65-75m (FY22 unaudited: €195m) and an adjusted

EBITDA loss of €5-20m (FY22 unaudited: €40m profit), reflecting disruption caused by the pivot towards cloud computing. The group expects significant growth in FY24 revenue to €200-240m

Northern Data Group | 19 December 2023

3

and an adjusted EBITDA of €50-80m, with the potential to reach €520-570m revenue and €300- 350m adjusted EBITDA in FY25. For the purpose of the above guidance, EBITDA is adjusted for 1) stock option plan expenses, 2) lawsuits and other one-off legal fees, 3) cost of systems implementation, 4) trading losses/gains from cryptocurrency, 5) restructuring costs and 6) impairment losses related to third party bankruptcy. This should be driven by 1) hash rate expansion of Peak Mining, 2) expansion in Taiga Cloud's available last generation NVIDIA GPUs and 3) the acquisition and construction of further data centres by Ardent Data Centres (contributing to results from FY25 onwards).

Ardent Data Centers: Housing the next wave of AI

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 and operates the group's 40MW Boden facility and is working to reach 120MW capacity for its colocation portfolio in the near term. Beyond FY24, management is targeting the acquisition of greenfield and brownfield data centres that have capacity of more than 50MW. By diversifying across regions, the company mitigates risks related to energy supply, regulations and data sovereignty.

In the short term, Ardent aims to meet the computing needs of its parent company, Northern Data, particularly the Taiga division (as its anchor tenant). On 4 December, Northern Data announced a €110m investment strategy to acquire two new data centres in the US (agreed letters of intent) and one in the UK (preferred bidder), which are on track to be finalised by end-Q124. This is key to ensuring sufficient capacity for Taiga's incoming NVIDIA H100s. Successfully deploying all planned GPUs on time, while investing in data centres that provide specifications consistent with its current portfolio, are key milestones for the group.

The division's data centres currently employ state-of-the-art cooling technology leveraging naturally cold climates to achieve industry-leading power usage effectiveness (PUE) below 1.2, with Boden reaching 1.06 - well below the industry average of above 1.5. This translates to at least 50% less wasted energy compared to peers. All centres run on renewable energy and are carbon neutral, aligning with customer and stakeholder ESG priorities.

The high power demands of HPC and AI model training present infrastructure challenges. GPUs often require 700W each, while servers can surpass 10kW. Training advanced AI models may utilise hundreds of these power-hungry systems in parallel. This goes beyond the capacity of many data centre facilities, where, according to a Schneider Electric white paper, racks are typically limited to 10-20kW of power. For context, mid-size colocation facilities usually contain between 100 and 500 racks, with less than 1,000 racks even in larger deployments. To support the intensive compute demands of HPC and AI workloads, data centres need robust power and cooling capabilities to provide sufficient rack-level power densities of 50kW or more per rack.

Ardent's infrastructure is designed for next-generation HPC, with sites able to handle up to 100kW 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 concentrating cooling on the chips rather than entire rooms. Management believes this combination can enable a 100% increase in chip power in some cases.

Northern Data Group | 19 December 2023

4

Exhibit 3: Walkthrough of Northern Data's high-performance data centre in Boden, Sweden

Source: Northern Data

Once Taiga's needs have been met, 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.

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.

Customers will be offered two contract types:

• Wholesale: typically 1-2MW over five to seven years with a base rent rate and usage-basedpass-through rate per kW.
• Retail: sub-1MW, typically c 500kW and three years on average, with a base rent rate and an additional flat rate based on space occupied, rather than usage.

The M&A landscape is substantial, as enterprises have designed centres with 2N redundancy, meaning they have a minimum 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 more to Ardent's needs and a design that is lower cost in the long run.

Taiga Cloud: Democratising HPC across Europe

Taiga Cloud's vision is to become Europe's first, largest and cleanest generative AI cloud service providers, aiming to democratise access to advanced compute power across organisations of all sizes. Previously the preserve of hyperscalers like Amazon and Google, or large multinationals like Adobe, advanced compute power has only been available to those with sufficient resources. 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:

• generative AI: large language models, image creation and automated recommendation systems;

Northern Data Group | 19 December 2023

5

• life sciences research/drug design: computational fluid dynamics, computer-aided biology/engineering, computational drug discovery, particle simulations;
• 3D rendering and visual content: 3D modelling, gaming animation, previsualisations, configurators; and
• digital twinning and synthetics: operational optimisation, predictive maintenance and anomaly detection.

As highlighted by news publications at the time, Northern Data identified the need for GPUs to power AI applications more than two years ago, before the widespread adoption of generative AI seen in 2023. Before Taiga's launch, the company had built one of the largest European clusters of A100 and A6000 NVIDIA GPUs, establishing a strong position for Northern Data to take advantage of the market opportunity.

Exhibit 4: Edison TV introducing Taiga Cloud, filmed in September 2023

Source: Edison Investment Research

The diversity of locations throughout 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.

Contract lengths are flexible (ranging from one-month rolling up to 36-month reserved), providing accessible GPU compute without multi-year commitments. The company expects GPU utilisation to exceed 90% 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, with plans to expand into more vertical specific channels like life sciences research institutions. 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 - H100 rentals yield the highest potential earnings, followed by A100 and then A6000 (see scenario testing). The configuration of GPUs will be dependent on use case and customer requirements.

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 will aim to move up the HPC stack by offering proprietary or third-party software services to help customers build models, adding potential upsell opportunities. Northern

Northern Data Group | 19 December 2023

6

Data highlighted that the division was able to ramp up sales from zero to €15m within 11 months and expects an annual run rate of €30m from Q124 from its NVIDIA A100 and A6000 GPUs only. Taiga also has four immediate contracts in its pipeline to deploy more than 6,000 NVIDIA H100 GPUs, potentially equating to more than €105m in annual revenue assuming €2 per hour and full utilisation.

NVIDIA H100 acquisitions secure its market-leading position

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 will see Northern Data receive 10,000 of the highly in-demand NVIDIA H100 SXM Tensor Core GPUs (c 2% of the 550,000 allocation being shipped in 2023), which have a value equal to the consideration price. Management has stated that acquiring Damoon was the most effective method to secure the GPUs as quickly as possible.

Damoon was originally purchased by Tether, the company behind the USDT stablecoin, as part of Tether's strategy to diversify into high-growth technologies like AI. Under the terms of the deal, Tether will supply Northern Data with all the GPUs and, in exchange, will receive a 20% stake in Northern Data. Tether initially retained a 30% ownership stake in Damoon, while Northern Data will have a 70% majority stake. Tether's stake in Northern Data comes from newly issued shares and a convertible bond (see Exhibit 5). In September, Northern Data exercised its option to purchase Tether's remaining 30% in exchange for 6.6m new shares from a capital increase (transaction 3) and a €52.9m convertible bond issue.

We also note that Tether provided Northern Data with a €575m debt facility at attractive rates to support the latter's business development across the three divisions, in particular the expansion of its generative AI cloud service offering.

Exhibit 5: Assumed development of total shares issued following Damoon acquisition

Source: Northern Data

Following final regulatory approval (expected by end-Q124 at the latest), Northern Data's acquisition of Damoon will provide it with a substantial share of NVIDIA H100s, which are in limited supply. 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, the company has created innovative server configurations

Northern Data Group | 19 December 2023

7

using technologies like InfiniBand networking to enable faster interconnect speeds versus traditional Ethernet. As an elite partner of NVIDIA and its largest European customer, Northern Data looks set to cement its position as a market leader in the European AI cloud space. Deployment is expected to begin in Q423 and finish by mid-2024.

On 29 November, Northern Data announced that it had acquired 384 cabinets of Hewlett Packard Enterprise (HPE) Cray XD supercomputers for €330m, which include c 8,200 more H100s. Although the exact mechanism for this is yet to be announced given its early stages, deployment is expected to finish by end-FY24. The group is also part of the HPE Partner Ready Vantage programme, in place to support the business models of HPE customers, which could be a useful catalyst to Taiga's growth.

Taiga has been certified as one of only 15 elite partners of NVIDIA globally and an official cloud service provider in NVIDIA's Partner Network, reinforcing its position to deliver European compute power at scale.

Peak Mining: Maintaining its bitcoin heritage

Northern Data is continuing its bitcoin self-mining operations under the name Peak Mining, operating thousands of application-specific integrated circuit (ASIC) miners across seven locations (Exhibit 6). The table 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.

Exhibit 6: Breakdown of mining data centres

		Location			Power capacity		Additional notes
					(MW)
		Georgia, US	18		Expanding to 120MW, currently in development
		Texas, US	10		Hosting partner; another 100MW is in development in Texas
		North Dakota, US	30		First site for deployment of new ASICs
		Texas, US	100	Site for deployment of new ASICs. Can expand capacity to
							300MW house potential future intakes of ASICs.
		New York, US	28		Partner
		Quebec, Canada	10		Owned
		Boden, Sweden	40		Hybrid between cloud computing and mining, owned
		Aurland, Norway	3		Owned
		Total	239
		Total (following Georgia and Texas completion)	659
	Source: Peak Mining

For its own mining operations, Peak generates revenue by earning bitcoin rewards from the blocks it mines and validating bitcoin transactions. The process of bitcoin mining is as follows:

• Transactions using bitcoin trigger the opening of a new block in the blockchain network, following which every transaction is bundled together over 10 minutes (a fixed block time).
• The block then closes once transactions are bundled and a new hash number is created, including the encoded details from each transaction.
• Miners then compete to solve cryptographic puzzles in a process called proof-of-work (PoW), which, if correct, validates the block and adds it to the previous block in the network, creating an immutable chain.
• • Validating the network through PoW is essential to maintaining the security of the network.
• The winning miner is rewarded with newly minted bitcoin for supporting the network, with the prize currently standing for 6.25 bitcoins per block.
• • The amount of total bitcoin is fixed at 21m coins, so the block reward is halved roughly every four years to regulate supply and drive value. Approximately 19.5m coins have been mined to date.

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,

Northern Data Group | 19 December 2023

8

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 their market share of the total network.

As at end-October 2023, Northern Data had c 35,000 ASIC servers installed, equating to a mining capacity of c 3.3 exahashes per second (EH/s), or quintillion hashes per second. This represents c 0.7% of the total bitcoin network hash rate, which is considerable given the largest publicly listed bitcoin miner by market cap, Riot Platforms, deploys 95,904 miners at 10.7EH/s.

Currently, Northern Data utilises c 80% of its available ASIC capacity to mine bitcoin directly but believes the uptime for some its sites could expand to c 95%, which should lead to a significant increase in the number of bitcoins mined. In its October 2023 mining report, the company had mined a total of 1,992 bitcoin and sold 2,026 coins, generating €48.7m in revenue year to date. 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 in a given month. 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.

To prepare for the next bitcoin halving, expected around April 2024, Peak has invested US$150m in the latest WhatsMiner models from MicroBT. As shown in our scenarios later, these miners significantly improve efficiency over Peak's current hardware, reducing power consumption for the same hash rate and expanding gross margins. As Exhibit 6 shows, Peak is constructing a 30MW North Dakota facility to house the first MicroBT ASIC intake, which management expects to be fully operational in Q124. Additionally, Peak acquired a 300MW Texas site, with the first 100MW build underway to house the remaining new ASICs from Q124. Peak has secured an option for another US$150m of MicroBT hardware, which will enable the company to fully utilise the site's full 300MW potential and ensure future hash rate targets are met.

Northern Data estimates that the new miners will translate into a hash rate for Peak of 7EH/s by Q124, which should increase further to 7.9EH/s by end-2024 on the back of existing portfolio enhancement (ie replacing existing hardware with more efficient ASICs, allowing for greater uptime), and potentially even to 14EH/s by end-2024 upon successful ASIC purchase negotiations (see Exhibit 7). The hash rate expansion is essential as next year's halving will lead to roughly twice the mining difficulty for the same bitcoin rewards. However, other miners are also ramping up ahead of the halving, so the market share and revenue impact is 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.

Northern Data Group | 19 December 2023

9

Exhibit 7: Peak Mining's confirmed hash rate growth including pipeline

Source: Northern Data. Note: *Incremental hash rate through hardware replacement to more efficient machines. **Pipeline with high likelihood of succeeding/near signing. ASIC purchase contract negotiations for pipeline sites ongoing.

Additionally, Peak's longstanding relationship with MicroBT should allow it to obtain a supply of ASIC miners with more stable pricing than the market spot rate over multiple years. Peak can also generate revenue from power supply contracts by redirecting electricity from its ASICs to the grid during abrupt power demand shifts. According to management, minor fluctuations arise three to four times annually, while major ones occur approximately every four to five years. The choice to divert hinges on weighing the respective profitability of mining versus power supply viability.

Poised for the imminent evolution in HPC

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.

The question of GPUs versus CPUs

Central processing units (CPUs) have historically been the default chips for data centre servers, with the ability to execute a wide range of computational workloads. However, we believe GPUs, originally designed for specific tasks like graphics rendering, have emerged as the primary processors for AI workloads.

While CPUs are built on a few optimised cores, GPUs contain thousands of smaller cores working in parallel to handle immense volumes of specific mathematical operations simultaneously (see Exhibit 8).

Northern Data Group | 19 December 2023

10