This episode unpacks the massive valuation disconnect in Galaxy Digital (GLXY), revealing how its misunderstood data center business, built on a unique power contract, positions it as a critical infrastructure play for the AI boom.
Introduction and Disclosures
The host, Jason, and guests Matt from Written House Research and Duncan from Flood Capital, all disclose that they are long Galaxy Digital (GLXY) stock. Their discussion is framed from the perspective of investors who see the company as significantly underpriced. They emphasize that the conversation is for informational purposes only and not financial advice.
Deconstructing Galaxy's Complex Business
- Galaxy Digital is often misunderstood due to its multifaceted operations. Duncan from Flood Capital provides a clear framework, breaking the $10 billion market cap company into three core buckets:
- The Balance Sheet: As of March 31, this includes approximately $1.8 billion in liquid crypto (BTC, ETH, SOL), $1 billion in stablecoins, and $500 million in cash, totaling a liquid balance sheet of around $3.3-$3.5 billion.
- The Crypto Business Lines: This encompasses a wide range of institutional services, including trading, asset management, and investment banking.
- The Data Center Business: A rapidly emerging and high-potential segment focused on providing infrastructure for AI and high-performance computing (HPC).
The Balance Sheet: A Foundation for Strategic Execution
Galaxy's robust balance sheet is a key strategic differentiator, particularly when compared to Bitcoin miners who are also attempting to pivot to AI. While miners like Core Scientific and TerraWulf have historically burned cash and diluted shareholders, Galaxy has a profitable operating history and a substantial capital base.
- Capital for AI Pivot: This financial strength allows Galaxy to self-fund the capital-intensive build-out of its AI data centers, a critical advantage. Matt from Written House Research notes that other miners lack the balance sheets or credibility to execute deals with hyperscalers.
- Credibility with Hyperscalers: Hyperscalers are companies like Google, Amazon, and Microsoft that provide large-scale cloud computing and data storage services. They require extreme confidence in a data center developer's financial stability before committing to massive GPU investments.
- Quote: Matt highlights this credibility gap: "While other Bitcoin miners have talked at length about their AI data center ambitions, they do not have the balance sheets nor credibility to execute deals with hyperscaler tenants."
The Crypto Business: The "Goldman Sachs of Crypto"
Galaxy's digital asset business is a comprehensive, institution-focused platform, often compared to an investment bank like Goldman Sachs for the crypto industry. It has historically been the company's core focus, with around 650 of its 800 employees dedicated to this segment.
- Franchise Trading: The trading division includes a nearly $900 million loan book, making it one of the largest centralized finance (CeFi) lenders. It serves over 1,400 institutional counterparties and recently executed a massive $9 billion BTC trade for a single whale client, underscoring its position as a go-to desk for large-scale execution.
- Asset Management & Infrastructure: Galaxy manages over $7 billion in assets across ETFs and funds, has over $3 billion in staked assets, and is the fourth-largest validator on Solana.
- Strategic Ventures (GK8 & AllUnity): A key potential growth area is its GK8 custody platform and 33% ownership in AllUnity, which launched one of the first fully regulated Euro stablecoins. This positions Galaxy at the forefront of asset tokenization, a market that could be worth billions.
- Investor Insight: The crypto business provides a holistic way to invest in the institutional adoption of crypto, from trading and lending to staking and tokenization. Its comprehensive platform makes it a prime acquisition target for traditional finance giants looking to enter the space.
The Macro Landscape: The Insatiable Demand for Power
The conversation pivots to the macro environment driving the data center opportunity. The AI boom has created an unprecedented demand for power and data center capacity, outstripping the available supply.
- The Power Bottleneck: Energy, not just chips, is the primary bottleneck. Hyperscalers like Meta, Microsoft, and Google are committing over $100 billion to capex, but are limited by the availability of power, cooling equipment, and transformers.
- The Value of Power Contracts: The US power grid has seen stagnant growth for decades. Securing large-scale power contracts, which can take years to approve, has become immensely valuable. Bitcoin miners, who secured these contracts pre-AI boom, are now in a prime position to pivot.
- Data Center 2.0: AI workloads require massive, consolidated power in single locations (e.g., 1+ gigawatt sites), a shift from the smaller, distributed data centers of the past. This creates a greenfield opportunity for new developers.
The Helios Story: From Bitcoin Mining to AI Powerhouse
Galaxy's entry into the data center business was a result of a strategic, and perhaps lucky, acquisition during the 2022 crypto bear market.
- The Argo Acquisition: Galaxy acquired the Helios facility in West Texas from distressed Bitcoin miner Argo Blockchain. The deal was initially a way to provide liquidity to Argo, to whom Galaxy had extended loans.
- The CoreWeave Partnership: Galaxy terminated the mining lease with Argo and signed a landmark deal with CoreWeave, a rapidly growing AI cloud provider that was once an Ethereum miner. CoreWeave needed data center capacity to compete with hyperscalers and was willing to partner with a new developer like Galaxy.
- Helios Site Details: The Helios site has 800 megawatts (MW) of power already approved by ERCOT (Electric Reliability Council of Texas), the operator of Texas's electrical grid. A 600 MW lease is signed with CoreWeave, with CoreWeave holding an option for the remaining 200 MW.
The Economics of the CoreWeave Deal
The financial terms of the CoreWeave lease are extremely attractive and form the foundation of the bull case for Galaxy's data center business.
- Revenue and Margins: The 600 MW lease is projected to generate an average of $900 million in annual revenue for Galaxy over 15 years. The lease structure passes most operating expenses to the tenant (CoreWeave), resulting in projected EBITDA margins of nearly 90%.
- Build-Out and Financing: The build-out will cost approximately $5 billion, which Galaxy plans to finance with $1 billion in equity from its balance sheet and $4 billion in debt. The high-margin, long-term cash flows make securing this debt financing highly viable.
- Valuation Impact: Duncan's model shows that the existing 800 MW at Helios alone could be worth $46 per share by 2028, or a discounted present value of $30 per share today—more than the stock's current price.
Future Growth: The 1.7 Gigawatt Expansion
The most significant upside lies in Galaxy's potential to expand its data center operations far beyond the initial 800 MW.
- Additional Power Approvals: Galaxy has an additional 1.7 gigawatts (GW) of power under study with ERCOT, applied for back in 2021. Management expects approval for the first 800 MW tranche of this expansion by the end of the year.
- Scale Comparison: If fully developed, the 2.5 GW Helios site would be one of the largest data center campuses in the world, comparable in scale to projects announced by Meta and Amazon.
- Strategic Pipeline: Galaxy is actively evaluating a pipeline of over 40 other Bitcoin mining sites for potential acquisition or partnership, signaling a clear strategy to become a major player in the AI data center development market.
Counterarguments and Risk Analysis
The speakers address key risks and bear arguments against the investment thesis.
- Customer Concentration: The primary risk is the reliance on a single customer, CoreWeave. However, the speakers argue that fears about CoreWeave's debt are overblown, as its debt is directly tied to secured customer contracts for its GPU capacity.
- Execution Risk: Building a data center of this scale is complex. However, Galaxy has mitigated this by hiring a team of experienced data center professionals and partnering with a top-tier contractor, Clēo. The existing lease with CoreWeave provides a massive stamp of credibility for attracting future tenants like Oracle or Google.
- Market Misunderstanding: The market has been slow to price in the data center's value due to the complexity of the business, its recent uplisting to the NASDAQ, and the fact that revenue generation won't begin until 2026.
Investment Thesis and Long-Term Outlook
Both Matt and Duncan view GLXY as a long-term investment with significant upside potential as the market begins to understand the value of its data center assets.
- Sum-of-the-Parts Valuation: Duncan calculates a potential present value of $55 per share by combining the balance sheet ($9/share), the crypto business ($16/share), and the currently approved data center projects ($30/share).
- Catalysts for Rerating: Key catalysts include CoreWeave exercising its 200 MW option, ERCOT approving the next 800 MW tranche, and continued execution on the Helios build-out.
- Potential Spin-Off: Management has indicated they may consider spinning off the data center business in the future to unlock its full value, as it would attract a different investor base focused on stable, long-term cash flows.
Conclusion
The conversation reveals GLXY as a complex, two-part story: a robust crypto financial services firm and a burgeoning AI infrastructure giant. Investors should analyze the data center's execution milestones and potential spin-off, as this segment holds the key to a significant valuation rerate in the coming years.
