$1.55
$7.00
bear $1.55
base $4.00
bull $7.00
margin of safety $1.75
market price* $5.40
Business condition attached to the margin of safety
Both the 10 MW Columbus, Georgia hyperscaler colocation contract and the Hydra Host B300 GPU cluster are reported in service and billing recurring revenue in a quarterly filing.
Duos Technologies Group is in the middle of a complete makeover. For most of its history it sold AI-based railcar inspection portals to railroads, and the company used cash in its operations in every year from 2016 through 2025. The rail business was sold effective June 30, 2026 (closed August 5) to Sandbank Acosta, LLC, a company half-owned by Duos's interim chief financial officer, for a $5.4 million, 5% note due 2031, after Duos first put $3.5 million of cash into the unit. In 2025 most revenue came from managing power-generation assets for New APR Energy, a Fortress-backed company in which Duos held a 5% stake. New APR sold substantially all its assets in the second quarter of 2026; Duos received about $50.4 million in cash, with another $10.0 million held back for indemnities, and that management contract is now winding down. What remains is a new AI infrastructure business, Duos Edge AI, plus a small IT-equipment resale unit, Duos Technology Solutions, formed in March 2026. Because the old businesses are gone and never produced positive cash flow (owner earnings ran between about -$0.50 and -$2.60 per share a year from 2018 to 2025), their history says little about the company as it now exists. We therefore valued Duos as what it owns today plus the contracts it has actually signed, discounted at 6%. What it owns: at June 30, 2026, about $112 million of cash (about $109 million after the rail-unit cash contribution), $68.8 million of deposits on equipment, $5.8 million of real-estate deposits, receivables of about $16 million, and almost no conventional debt. Book equity was $207 million, but that figure is only as good as the returns the equipment earns. There are about 31.5 million shares plus roughly 3.8 million pre-funded warrants from the May-June 2026 offering; we use about 36 million shares to allow for other warrants and options. The share count has roughly quadrupled since 2023 through repeated stock sales, and anything beyond the contracts below will likely need more capital. The signed contracts we credit: 1. A 36-month GPU rental agreement with Hydra Host for a cluster of 2,304 NVIDIA B300 GPUs, worth about $176 million of revenue, with an $18 million customer prepayment already received. The GPUs sit in a Duos subsidiary financed by a $98.1 million, three-year loan from USD.AI secured only by the equipment; Duos itself is not liable except for specified misconduct. The economics are thin: over three years the contract revenue roughly covers the cluster (about $167 million including the deposits), operating costs and loan interest, so the payoff depends on what the GPUs are worth afterwards. As a judgement, since GPU generations turn over quickly, we assume 20% of cost remains in the base case, 10% in the bear case and 35% in the bull case. 2. A five-year, 10-megawatt colocation contract signed July 16, 2026 with an unnamed investment-grade hyperscaler at Duos's newly bought Columbus, Georgia data center, worth $111 million (about $22 million a year) and starting in the fourth quarter of 2026. We assume about $50 million more to finish the site and about 70 cents of each revenue dollar kept as cash. After year five we credit only the leftover value of the building and power infrastructure, because no renewal is contracted. 3. About $28 million of IT-equipment backlog in Technology Solutions at a gross margin near 23%, credited once rather than as a recurring business, because the unit is only six months old. We also count the $10.0 million New APR holdback and the rail note, each reduced for collection risk. Against this we charge corporate overhead of about $12.5 million a year including stock compensation, the current run rate, easing to $8 million after three years as the company runs its contracted assets. What we left out: the five-year, 55-megawatt hosting agreements with Axe Compute announced August 17, 2026 (over $500 million of base payments) are excluded from the base and bear cases. They depend on sites not yet disclosed or built, on successful completion and Axe Compute's written acceptance, and on several hundred million dollars of construction capital Duos does not have. Management's target of more than $50 million of 2026 revenue and positive adjusted EBITDA was not used. Owner earnings worsened last year, from about -$9.9 million in 2024 to -$17.5 million in 2025; the positive cash flows in our cases come only from the contracts signed in March and July 2026, with the prepayment already in hand, not from any assumed recovery. Bear case, $1.55 per share: both contracts start about a quarter late, the Columbus rent turns out to include electricity so less of it is kept, the fit-out costs $65 million, the GPUs are worth only 10% at the end, the rail note is never paid, and overhead stays near $14 million a year. Because the GPU loan has limited recourse, that project cannot cost shareholders more than what is already invested.
Base case, $4.00 per share: both contracts perform as signed, on the assumptions above.
Bull case, $7.00 per share: lower operating costs, a 35% GPU residual value, the hyperscaler renewing Columbus for a second five years on the same terms, the IT resale unit continuing to earn, and a modest value for the Axe Compute projects if they are financed and built. Most of the value in every case is today's cash. The real question is whether the money going into GPUs and data centers earns back more than it costs. On the contracts visible today it roughly earns back its cost and little more, while overhead absorbs the rest, which is why the base value sits below book value of about $5.80 a share. Main risks: dependence on two counterparties, fast obsolescence of GPUs, related-party dealings (the rail sale to a company part-owned by the CFO; the former chief executive previously ran APR Energy), and further share issuance. We would be too cautious if Columbus expands to the 20 megawatts the contract allows, or if the Axe Compute sites are built with financing that does not heavily dilute shareholders. The purchase price of the Columbus facility and the interest rate on the GPU loan were not disclosed, so both are estimates.