Galaxy Digital’s AI Deal is transformative, analyst says

Galaxy Digital’s recently announced 15-year AI hosting agreement with CoreWeave marks a potentially transformative move for the company, according to H.C. Wainwright & Co. analyst Mike Colonnese.

The deal was announced during Galaxy Digital’s Q4 2024 earnings call. As part of the deal, Galaxy will repurpose 200 MW of its Helios mining facility in West Texas to host 133 MW of critical IT load for CoreWeave’s GPUs.

The contract is expected to generate $4.5 billion in revenue over its term, or around $300 million annually, which represents 70% of Galaxy’s total 2024 revenues, according to the analyst. These terms are “very favorable relative to other high-performance computing deals,” with an estimated $2.26 million per MW in annual revenue at roughly 90% EBITDA margins.

Significant growth potential at Helios

While the upfront retrofit costs are expected to range between $1.46 billion and $1.73 billion, Colonnese noted that most of this will be financed through project debt. CoreWeave will cover ongoing electricity and operating expenses, keeping Galaxy’s recurring costs low. The analyst also pointed out that Galaxy has 600 MW of additional capacity at Helios to support future expansion. He wrote:

“Applying current data center valuations to contracted capacity for Galaxy’s new data center business, we estimate the segment could eventually be worth over $3.5B, a valuation that is far from being priced into shares.”

The analyst is maintaining a Buy rating on Galaxy’s stock with a price target lowered from C$35 to C$30. The price target reflects an approximate 40% discount to traditional finance broker dealers given “Galaxy’s smaller scale and narrow focus on digital assets,” and a 40% discount to Coinbase.

Q4 recap: exceeded expectations

Galaxy also delivered a Q4 beat. Revenue of $698.1 million was up 388% from the prior quarter and beat the analyst’s model of $248.2 million and the consensus estimate of $202.7 million.

The company reported a $560.6 million realized gain on digital ssets in the quarter and a $84.9 million realized loss on investments. Total operating expenditure of $440.3 million was up 137% quarter-over-quarter, driven in part by a $166.3 million one-time charge related to a settlement with the New York Attorney General to resolve claims related to its involvment with LUNA.

Net income/EPS of $174.3 million/52 cents also exceeded the analyst’s estimate of $94.2 million/28 cents.