Shares of Bit Digital (BTBT -4.50%) rose more than 10% this week after reporting its full-year 2023 earnings, according to data from S&P Global Market Intelligence. The cryptocurrency miner and now artificial intelligence (AI) company posted earnings for the fourth quarter. However, the business is still burning tons of cash and heavily diluting shareholders.
Here's why shares of Bit Digital are rising, and what it means for investors.
More cryptocurrency mining, and now AI
Bit Digital is a cryptocurrency miner. This means it takes computers and electricity to earn digital currencies like Bitcoin that can sit on its balance sheet. The input costs depend on how expensive electricity is, but the output is determined by the price of Bitcoin. Bitcoin has begun to soar in recent months, nearing all-time highs.
According to the company's balance sheet, Bit Digital now has over $40 million in digital currencies, up from $27.6 million last year. This is not a monumental sum of cryptocurrencies, but the company is betting on the narrative out there that prices will keep rising. It has minimal debt and raises money by selling stock and diluting shareholders.
Now, the company is hopping on a new investment trend and investing in artificial intelligence. It launched Bit Digital AI in October 2023 to sell generative AI tools to other companies. It hopes to generate $100 million in annualized AI revenue by year-end 2024. Investors should hold the company's feet to the fire and track this progress in the coming years as this is a large pivot for the business.
The future won't look much different
Bit Digital tells a good story. It is hopping on two of the most popular narratives in markets: cryptocurrency mining and AI. But if you look at its underlying financial statements, the story is ugly. Bit Digital is free-cash-flow-negative and has been for a while now. It is also highly dilutive to shareholders, with shares outstanding going up by 10x in the last few years. This is terrible for existing shareholders.
Even though the stock is rising this week, Bit Digital is down 92% from all-time highs. With no prospects for turning around its cash burn, the company will likely continue to dilute shareholders and destroy per-share value. Expect the stock to continue falling over the long term.
