Galaxy Digital’s AI Deal is Transformative, Says Analyst

Galaxy Digital’s recently announced 15-year AI hosting agreement with CoreWeave is being seen as a transformative move for the company, with significant growth potential. According to Mike Colonnese, an analyst at H.C. Wainwright & Co., this deal marks a major shift for Galaxy, significantly impacting its future revenues.

Under the terms of the agreement, Galaxy Digital will repurpose 200 MW of its Helios mining facility in West Texas to host 133 MW of critical IT load for CoreWeave’s GPUs. This partnership is expected to generate $4.5 billion in revenue over the contract’s 15-year term, which translates to about $300 million annually. This will account for 70% of Galaxy’s total revenue in 2024, according to Colonnese. These terms are considered very favorable compared to other high-performance computing deals, with the deal bringing in around $2.26 million per MW annually at approximately 90% EBITDA margins.

While the project requires a retrofit cost ranging between $1.46 billion and $1.73 billion, most of this will be financed through project debt. Moreover, CoreWeave will cover ongoing electricity and operational expenses, significantly reducing Galaxy’s recurring costs. Galaxy also has 600 MW of additional capacity at Helios, which can support future growth and expansion.

Colonnese estimates that Galaxy’s new data center business could eventually be worth over $3.5 billion, with this valuation not yet priced into the company’s shares.

Despite the positive developments, the analyst has lowered the price target for Galaxy Digital’s stock from C$35 to C$30, reflecting a 40% discount due to Galaxy’s smaller scale and its focus on digital assets, as compared to larger players like Coinbase.

In its Q4 2024 earnings report, Galaxy Digital significantly exceeded expectations. The company posted $698.1 million in revenue, a 388% increase from the previous quarter. This result surpassed both the analyst’s model of $248.2 million and the consensus estimate of $202.7 million. The company also reported a $560.6 million realized gain on digital assets and a $84.9 million realized loss on investments. The total operating expenditure for the quarter stood at $440.3 million, a 137% increase quarter-over-quarter, largely due to a $166.3 million one-time charge related to a settlement with the New York Attorney General over its involvement with LUNA.

Additionally, Galaxy reported a net income of $174.3 million, or 52 cents per share, well above the analyst’s estimate of $94.2 million or 28 cents per share.

In conclusion, the AI hosting deal with CoreWeave represents a major strategic shift for Galaxy Digital, with long-term growth potential through its Helios facility and new data center business. The company’s recent strong Q4 performance adds to the optimism around its future, although the price target adjustment reflects its niche focus within digital assets.