Empire Cross-Post: The Bull Case For GLXY With Duncan & Rittenhouse Research

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think it could be worth like a $100 a share in the next few years. So, that's personally how I'm thinking about it. It's definitely a long-term investment. I think as they execute on the data center business, if they continue to execute there, then like I'm really happy to hold this for a very long time. I'm bullish on crypto. I'm bullish on AI. I'm bullish on the management team. So, that's kind of how I think about it long term. This episode is brought to you by Arkham. Arkham allows crypto traders and investors to look inside the wallets of the best traders, largest funds, and most influential players in the crypto markets today. We'll hear more about Arkham later in today's episode. Hey everyone, quick disclaimer before we get into today's episode.

Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed. Today's episode is a crossost from Empire. This week, Duncan and Matt join Jason to dive into Galaxy's unique business model and how it's perfectly positioned for the AI, crypto, and data center narratives. Enjoy. All right, everyone. Welcome back to Empire. Very excited about this one. We we were we were supposed to have Novagrats on the show. Um, we had to push that until after their earnings. uh their earning uh Galaxy earnings are coming up August 5th, I think it is.

These guys can correct me if I'm wrong, but still wanted to uh still wanted to do something on on Galaxy. Uh full disc full disclosure, I own three uh stocks. They are Coinbase, Robin Hood, and Galaxy stock. So, I do just want to give a disclosure there that I'm long Galaxy. Um wanted to we're still gonna have Novagrats on the podcast, but wanted to have uh two guys, Matt from Written House Research and Duncan from Flood Capital on. They are probably the two leading voices uh in the more cryptonative world uh talking about Galaxy as an underpriced uh stock. So Duncan uh forget if you've been on the show before, but welcome welcome or welcome back. And then uh yeah, Matt, good to have you here, too.

>> Yeah, it's great to be here. >> Yeah. >> Yeah. No, and I guess Matt and I both own the stock as well. Just making that clear. >> I figured you guys did. I figured you guys did. >> Very long. >> Yeah. So, um the the the other thing, just quick housekeeping, is we have Digital Asset Summit coming up. It's October 13th through 15th. Uh code Empire 100 gets you a ticket. Uh discounted ticket, get 100 bucks off your ticket. And the other thing is if you're listening on Spotify or Apple, you probably want to watch this one on YouTube. We're going to do a lot of screen sharing, showing some different models, stuff like that. If you're not watching on YouTube, that's fine. Um okay, let's jump in with Galaxy is a very complicated business, actually. Um, I spent a lot of time prepping for this

podcast and just reading about Galaxy as a business um, over the last couple of weeks and um, it's a very misunderstood business, I would say. Like I think if you look at something like Coinbase's business or Robin Hood's business or um, I don't know, Facebook's business like these are very understood businesses. Galaxy is very misunderstood um because they have a crypto business that is like I think people know especially people who are listening to the show and they think about Galaxy as a business. you've got um the OTC desk and the asset management business and the funds, but it's kind of like what does Galaxy really do over there? So, I think that'd probably be the best place to start. Uh maybe Duncan, I will pick on you. Can you just give a like how how do you think about the components of Galaxy?

Like, walk me through their business. >> So, I basically break down Galaxy into three main buckets. They have their balance sheet. So the market cap today it's trading around, you know, just under 30 bucks, 20 28 bucks. So that's around like a 10 billion market cap. Um, and they have a a crypto balance sheet which consists of so as of March 31st, you know, 1.3 billion in kind of like Bitcoin, ETH, Soul, uh, I think they've bought some hype recently. I know they have some Sooie crypto's up like 40% since then. So, let's call that like 1.8 billion in liquid crypto. Then they have a billion in stable coins. And then they

earned or they just did a raise for 500 million in cash. So, you're looking at, you know, roughly a $3.3ish billion balance sheet depending on, you know, how their crypto performance did. I know that they like, you know, took a big hype position which has outperformed. They've done a lot of these treasury companies recently which have outperformed. So, you know, let's say like 3.3 to$3.5 billion balance sheet. And then that leaves you kind of with like 6.5 to 7.5 billion of like equity value for all their crypto business lines, which we can run through. They have a bunch of like joint ventures within crypto. And then also they have this like massive data center business that's just starting to get off the

ground right now. >> Okay. So, we've got a $10 billion business. We've got the balance sheet. We've got the crypto business lines and the data center business. Matt, is that roughly how you think about the business? >> Yeah, I think that's that's about right. And I think on top of that 3.3 billion that Duncan mentioned in like liquid assets, which is like cash, stable coins, um, Bitcoin and ETH, they also have a couple hundred million dollars of like illlquid venture investments um that are also incremental to that 3.3 billion. >> Yeah. >> Yeah. Like there could be some sleepers in that. They don't really like break out the balance sheet very well, but you know, they've been investing in companies in crypto for a long time. So, you know, an example of one that they've

like kind of monetized in the past was they're an early investor in Fireblocks. So, they've like sold some of their stake. I don't know if it's their whole stake. They're also like an investor. What is it? Bitco or bullish who's going to IPO soon? But like >> bullish bullish. >> So they they're investor in that like they have like kind of these sleepers in that 200 million that like actually could you know be pretty material in the future. >> Let's talk about what I personally find to be the least interesting part of those three components. So you've got the three components, the balance sheet, the crypto business, and the data center business. I would say the the most exciting by far is the data business.

What I find the least exciting is the balance sheet. The balance sheet. But I think it's actually important to start with that because once you So we've got this $10 billion market cap, $3 billion balance sheet. It kind of contextualizes it. It helps you understand if the crypto plus data business is overvalued or undervalued because you're valuing the other things at 7 billion obviously. So walk me through let's get into the balance sheet a little bit more. >> Yeah. So I would basically think of the balance sheet as like you know enabling them to have this like liquid crypto exposure make these venture investments and infrastructure investments off the balance sheet as well but it also provides like a really strong capital base to expand their crypto business lines and um also the data center

business line. So for example with the data center businesses a lot of these Bitcoin miners are trying to convert into like AI data centers but they you know historically like very poorly run companies don't have much cash on the balance sheet and so it's very difficult for them to like build out a data center it's very capital intensive right so Galaxy is in a completely different position where they have like you know a very strong balance sheet and they actually have the best uh deal economics out of like the few other deals that are out there with like Wolf, um, Core Scientific and ALPD because Galaxy's funding the entire build out themselves where like those other companies have to, you know, look at different sources

of financing. So that actually gives them like a big edge um, in the data center business side and also just like they can enable a lot of their assets for their different crypto business lines right? and uh ETFs like providing liquidity and such because they're also like a big ETF provider. >> Yeah. And just to piggyback on the point about having a stronger balance sheet versus some of the other Bitcoin miners, just to like contextualize, Galaxy's like $3.3 billion of like liquid assets available is like well north of what anyone else who's a Bitcoin miner has when they're trying to do these data center conversions. So most of these other um businesses like if you're looking at Core Scientific and

and Terra Wolf and these numbers are as at the end of March um they all have under a billion dollars of cash. And then Duncan, you sort of touched on this, but the Bitcoin mining business has pretty much been a horrible business to be in historically um for a variety of reasons and and we can jump into those, but these these miners have basically been burning tons of cash and diluting their shareholders to to seemingly no end. Um whereas Galaxy has historically ran a pretty profitable crypto operating business. So their trading business, their investment banking business, their asset management, the staking, that's like the the core of the digital assets operations. I think that's generated over $2 billion of cumulative profits

since since Galaxy was founded. Um whereas all these other Bitcoin miners have been have been losing money hand over fist. >> Yeah. And and one point I'd like to highlight here is if if you look on the right and three are changing common shares outstanding. So Terra Wolf, you know, they've tripled their share count. That's like the exact same story. Like Irene looks very similar to that. Mara Riot, like they've all had insane dilution. So like if you're looking for a long-term investment, these Bitcoin miners are very hard to hold cycle to cycle cuz you know when Bitcoin goes down, they're unprofitable. In order to save off bankruptcy, they need to issue more shares. And you know, Galaxy's there, this is before they did the raise, but you know, you're talking over the last three years like 10 15%. And

Matt might have the details on this better than me, but they also like were buying back stock when Galaxy was like two, three bucks in the last bare market right? >> Yeah, that that's right. And I think like it probably makes sense just to sort of level set um a bit on like comparing Galaxy to some of these Bitcoin miners because that's honestly one of the what sort of got me interested in Galaxy to begin with is Core Scientific was the first of these Bitcoin miners to to strike up a deal with an AI cloud compute company. So they um basically signed a lease to lease their data center capacity to to to Coreeave um back in June of of 2024.

So a little over a year ago. And then they continue to um increase the amount of of that lease. So over the past year or so, Core Scientific has basically slowly converted all of their Bitcoin mining operations um into an AI HPC data center business. So they were sort of the the pioneers um of these Bitcoin miners in in converting and pivoting to AI. Um and their stock price has done really well. It was a couple of bucks at the beginning of 2024 when they came out of bankruptcy and I think it's around 13 today. So, when I started looking at some of these other Bitcoin mining businesses um to to sort of think about it as a catch-up trade in in that they

should do well if they're able to successfully pivot their business to AI just like Core Scientific did. Um what was really attractive about Galaxy is that at its core they weren't really a Bitcoin miner. They had this profitable digital assets business. Um, and that's really a massive difference when you're when you're looking at Galaxy versus these Bitcoin miners. >> Yeah, maybe if I the way that I understand it, um, Matt, you had this line in your on your research report, which we can link to on, uh, on on page six. Um, I can I can pull it up right here, but you said, uh, let's see, let me pull this up so I can make make sure I get the language right. You said 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. So the way that I understand this is basically uh like Duncan was saying the Bitcoin mining uh business is really really tough and um uh thank you know I think a lot of these Bitcoin miners see this massive opportunity which we'll get into and I want to spend the majority of this podcast actually talking about that is there's this huge opportunity actually with these hyperscalers because they need a bunch of power and hey maybe the Bitcoin miners uh they're like all right we have the power but unfortunately they don't have the balance sheets that someone like a Galaxy does to actually pull off this pivot. Is that roughly the right way to understand it?

>> That's that's definitely I think in my opinion a huge factor as to why Galaxy's been successful in their pivot to AI is just the strength of their balance sheet. Um I guess like if you think about it right if you're Core Wee or if you're Oracle if you're Google um you're making basically a massive investment into the Nvidia GPUs um that are going to go inside one of these data centers. So, you need to really have a ton of confidence in the developer of the data center that they're going to have the financial resources to to be able to complete these massive construction jobs on time. Um, you obviously don't want to invest a ton in these chips and then have them sitting idle because the developer um is behind schedule and obviously none of these Bitcoin miners

have built AI data centers before. So there's just a a ton of risk associated with a hypers scale like Oracle or Google going to a Bitcoin miner. Um and I think Galaxy's balance sheet gives them a lot of credibility um in those conversations. >> Yeah. Anything else on balance sheet that you guys think is important? >> No, I think we covered the the main points there. And even if you think about like some versus some of these treasury companies, right? Like you know these treasury companies are trading at historically like you know around 2x nav. So like you want to put Galaxy is not going to be issuing stock to to buy

more crypto. But like just putting that in context a 10 billion dollar business minus the three and a half balance sheet you know you got uh six and a half uh for their entire crypto business line and data center. like it's it's very cheap in my opinion versus these treasury companies. >> Yeah. Let's talk about let's talk about how we get to that math. So the cryp okay the crypto business this is where it really starts to get interesting. How do you So I'm I'm on their website right now and I'm pulling up they've got data data centers and and digital assets. Under digital assets you've got trading, lending derivatives investment banking, asset management, infrastructure solutions, technology products. And for anyone who's been yeah in in around the industry, Galaxy has

always kind of sat at the center of some of a lot of the things in the industry, right? They bought GKA GKA. So they have um uh custody. They're they're they're always one of the biggest lending lending players. They've got um the OTC desk is really impressive. They've got their funds. They do, you know, trading and staking and all that kind of stuff. How do you guys think about what's the um analogy for their crypto business? like is there how do you think about just the what they really do? I'd say >> for sure and maybe we can just throw up my screen cuz I have uh some like data points on on the crypto business but basically for some context.

So this was been Galaxy's main focus since the beginning and then they just kind of like came upon the data center business but we can talk on that later. So they have I think they have around 800 employees um 650 of which are in the crypto business. So like you know by far it's historically been their their their main focus and yeah just like running through some very highlevel stats um of an overview of what they do. It's like extremely extensive. I call them like the Goldman Sachs of crypto or like the Birkshire Hathway of crypto because they just touch literally every element of crypto like Galaxy is involved at some point. I think that's the right framework. By the way, I think the Galaxy of crypto I don't know if Birkshshire Hathway is the right uh but I I think I think Galaxy is the right

mental model especially because they don't really have the the retail like Coinbase has more of the retail business, right? So that could be like a JP Morgan with their Chase business or like a Bank of America, but uh yeah, Galaxy I do think because they're only an institutional business, I do think that is the right framework. Arkham was created to make blockchains human readable and simplify blockchain data so that it is meaningful and useful to the average crypto user. With their new exchange, users can see what the top traders are buying and selling with Arkham Intel and then trade on that information with Arkham Exchange. To get started, follow the link in the show notes below. As always, investments in blockchain technology involve risk.

Terms and conditions apply. Do your own research. >> Walk me through walk me through the different product lines. >> Yeah. So, you know, they have basically like a massive trading business which they say like so derivatives, lending, trading, structured products. Um, this is of the the last quarter. So, I think probably March 31st. So, like nearly a $900 million loan book. So, that's like the second or third largest CFI lender in all of crypto. And if you think of something comparable like, you know, I think Maple has, you know, maybe a bit bigger, but a similar type size loan book, and that's like a $500 million market cap in crypto just on that like one business line. Um, you know, nearly 1,400 trading counterparties with, you know, over 10 billion in trading volume

per quarter. An interesting thing that we saw just a few weeks ago is that like massive Bitcoin whale who had like 80,000 BTC chose Galaxy to execute the trade. So that was like a $9 billion trade just on that like one customer and Galaxy seems to be like the go-to place for these like big institutional players to like you know execute trades of that magnitude. Um they have an investment banking business. So you know there for instance earlier this year like they advised Bitstamp on their sale to Robin Hood. Uh they were on the Coree IPO. Um they've been involved in treasury deals like ESB and BMR like Tom Le's ETH play.

Um in terms of that like when you think about the product offering they can bring to these companies it's like hey okay we're going to invest in you um you know we could help you raise money we could execute your trades. We could do your custody. We could do your staking. We could help you utilize your assets in DeFi. like they have just such a broad suite of product offering that it makes a lot of sense for like these companies to partner with them. Matt had like a great little post off his Twitter account on the ESBet deal where Galaxy is managing like half of um the ETH under ESB and they're going to be charging between like a 50 basis point fee to like a 1.2 uh 125 basis points plus um you know take like staking the

ETH. So Matt, I forget how much like what what your kind of math was on that, but that's just like a good context on, you know, their business there. >> Yeah. And I think um if you just go back up real quick to the the trading part um the franchise trading. So just to it's it's really hard to value this type of business. Um just because there's I guess there's a lot of volatility in these volumes. Um and you would expect that as more institutions are onboarded into crypto they would pick up over time. But I think just like as a framework to think about valuing this there there have been a couple of um prime brokerages. One is Hidden Road. They got acquired by Ripple

Labs for 1.25 billion. That was earlier this year. Um so that that's sort of one data point. And then Falcon X, which is another prime broker um focused specifically in crypto, they raised around at an $8 billion valuation in the summer of 2022. So obviously there was a ton of noise going on in the market. It's tough to know whether um that that valuation was impacted by what was going on at that time, but those are just like two data points that I sort of think about in terms of what the the franchise trading business might be worth.

>> Yeah, for sure. And then going into the asset management, so this is as of March 31st, I'm pretty sure. So they have like over 7 billion of assets on the platform. process between like their ETFs and their their various funds like venture funds and such. You know, they've won really big contracts being kind of like the gold men in the room, the adult in the room, like the whole FTX estate deal, right? Like they were in charge of custoing those assets. They have over three billion in staked assets, which I think this is going to, you know, take up a lot in the next few quarters with all these treasury plays.

You know, they're the fourth largest validator in Salana. You know, they're an ETH validator. They're rumored to becoming a hype validator. Um and then they just announced like a big venture fund of 175 million bucks. So they are just like you know every aspect of crypto like comes up again all the asset management side. And then this last point which I think is pretty interesting and could be like a big growth avenue from them in the future even though they probably aren't generating a ton of revenues here now is this like GKA platform which is like an institutional-grade custody and tokenization platform. You know they want to tokenize equities. they want to um partner with. So Galaxy is also like a 33% owner in all Unity stable which is

basically like the first fully regulated Euro stable coin. Um so like GK8's doing the tokenization for the Euro stable coin and eventually I think their goals are like once they get like European stocks on chain like GK will be the custody provider for that and like help settle between euros and and those equities. So like these are like massive kind of like sleeping parts of the business that could be huge in the future, right? You know, Circle at like a $50 billion valuation, you know, could all Unity be the circle of Europe at like a 10% uh you know, market cap of that? That that could be huge. Um so that's kind of what I would kind of summarize the crypto business as. I

think Matt's points are excellent in terms of they have historically you know from the Goldman report here let me find yeah so from you know 2022 to 2024 their expenses on the digital asset business have been like rather fixed and then their revenues have fluctuated a lot but they're kind of set up to really scale this business they've invested like a lot of capital into building out the infrastructure building out the teams hiring new people and now that crypto like is getting more positive regulation, you know, the Genius Act got signed into law, the Clarity Act passed the house. Um, you know, the SEC just put out a really bullish thing on like, you know, market structure and

tokenization that hopefully they can keep their costs relatively fixed and really scale their revenue here and we should see them like, you know, become this business line become way more profitable. And I think Galaxy like how I think of the crypto business is you know instead of picking like one specific altcoin or um you know one specific like crypto stock definitely feels like a holistic way to play just like the success of everything in crypto right like you know more institutional adoption stable coins the euro stable coin tokenization increase in lending and that's kind of how I think about it and then if you think from like a Goldman Sachs point of view or like a uh

like a Black Rockck point of view, like what would it be worth to them to acquire Galaxy for all of these business lines, right? Instead of having to build them out in house. So that could be like they could be willing to pay billions of dollars to just kind of absorb all these business lines from Galaxy and not have to build it from scratch in house, especially if this market's getting more competitive. >> Yeah, I think I think that's really a huge point there. There's like a lot of strategic value in the digital assets business of Galaxy just because they're the only like full platform that has this comprehensive set of offerings that's tailored specifically for institutions and companies operating within the cryp crypto ecosystem. Like there's there's really no other

comparable business in that sense. And then the only the only thing I'd add is also what I think makes this platform valuable and unique is that with that strong balance sheet now they they have a lot of optionality in terms of other smaller crypto companies or products that they can acquire and then immediately sell those products into their institutional customer base that they already have. I think yeah I think it's over a thousand trading counterparties. So those are institutions that they're they're trading with. Um, so any sort of new products that come out that could be sold into those types of businesses, I think it would make sense for for Galaxy to acquire and immediately be able to to to cross- sell those products.

>> Yeah. And then just on the valuation front, um, so this is like Goldman put out a report a couple days ago and this is just like how they kind of value the the digital asset business. So they think it's worth around like 6.4 4 billion. >> Wait, what are the comps here? Can you talk us through this? Um, what? Okay, average adjusted PE is 20 >> 28. >> Yeah. So, 30 the multiple they're using 35x. So, I think they they comp it to different uh investment. I think I have that pulled up here. They comp it to different.

>> So, they they must be comping it against something like a Coinbase, right? Because the I think the PE of something like a Goldman or a Morgan Stanley is 15 to 15 16 17 roughly. Uh, so they it sounds like they're comping it more to something like a coin a crypto business, an e Toro, a Coinbase, a Robin Hood. >> Yeah. So I think they're doing like a blend of like kind of investment banks and then these more growthy crypto businesses. >> Uh, so like right there, you know, on their on Goldman's projections, 6.4 billion in market cap, which is, you know, quite a lot. Um, and yeah, I think this they're, you know, their their balance sheet estimates are low given like the

movement that's happened in crypto and stuff. >> Okay. Wait, so hold on. So for people who aren't watching on YouTube, so they've got the uh zoom in a little bit, Duncan. So the digital assets segment, you've got the adjusted net income is 183 and then they've taken this PE of 35 and that gets an implied market cap of 6.4 four billion for the just the digital assets business. Yeah. >> Yeah. Exactly. And then I have been >> Is there is there a counterargument here though that they that they shouldn't be comping it against something like a Coinbase or a Robin Hood and instead you should really just comp it against something like a Goldman which has a PE of yeah like I just looked it up 15 and a half instead of the 35 that they put

out. >> Yeah, I think I think that is a valid argument. um just because in terms of like the actual business model of providing financial services to institutions that's it's it's more aligned with a Goldman than it is something like Coinbase because that's obviously a retail facing business. But um on the other hand like Galaxy's book value if you look at the book value per share has compounded from I think it was a dollar back in 2018 to close to $7 today. So they basically been growing that book value per share at a ridiculous clip and and well above what Goldman's been growing at. So >> to to that end, I think you would you would argue that it should trade at a premium to to where Goldman trades just

because of how much faster they're growing. >> Yeah. And also just like the crypto business like I think that those volumes are going to ramp a lot. Like it's more, you know, Goldman's business is more mature whereas like these crypto businesses are probably going to be a bit more growthy. >> Yeah. Um nice. >> What's the most what's the most interesting part of this business to to you guys? So, right, you have the franchise trading, right, which is you've got this massive lu uh loan book. You've got like a billion dollar loan book almost. You've got like over a thousand counterparties. So, you've got this huge OTC desk like big trading operation. You have the investment bank.

Um, you have the asset management business. You have the infrastructure solutions. Like, what do you guys get real? What what's the most exciting part of all this to you? Matt, maybe if you want to start. >> I mean, I guess this will probably be kind of a copout answer, but I think what makes it unique is that all these different offerings are packaged into to one business. Um, but I guess if I had to pick, I think the infrastructure solutions around staking and custody and tokenization is probably the most exciting just because of stuff like the all Unity stable coin, which which Duncan touched on a little bit earlier, but it's basically going to be one of the first fully regulated Euro stable coins. And Galaxy owns 33% of the the

business behind that stable coin, which I think it just launched either yesterday or the day before. So obviously with with Circle Ripping to $40 billion market cap, you can do some uh moonboy math and and get to a pretty crazy value of of what that could potentially be worth them on. >> Yeah, I'm going to agree with Matt because I think that this stuff is just like not priced in at all. And if Galaxy is able to become like a leading player in you know tokenized equities um or you know in in the euro stable coin market like those could be worth billions of dollars on their own and it's kind of like a sleeping as like it's a bit of a sleeper on the balance sheet like not many people know about this you know has so many different

business lines it kind of just like falls between the cracks like it kind of gets lost. >> Yeah. Well, I guess the the reason it probably gets lost is I mean G it's just not a big business at all relative relative to the rest of their business. And also custody, it's really a custody platform. Like they I you know I know GK pretty well. Like I think they bought them for around 40 50 million. They were doing roughly let's call it 10 to 20 million in revenue. Like custody is just not that big of a business. And you can see like Anchorage, BitGo, uh Copper, all these guys like they they they started as custodians and then they had to expand out and do other things. It's funny, all these companies are now kind of building the exact same platforms.

Like Anchorage is now doing lending and trading, and Bitco is now doing staking and lending and trading. And so, they're all actually in a weird way competing against each other and building the same thing. >> Yeah. I just think like Yeah, we'll have to see because the tokenization like rules aren't clear yet, but that's obviously a potentially massive market in the future, right? You bring all equities on chain, like that could be huge. And and then that coupled with the other synergies of of Galaxy like could could be really big. But >> yeah, >> um yeah, I guess we'll just have to see. >> Yeah. Okay. Um anything else on the crypto business that you guys want to touch on?

>> No, I I think we basically covered it. I think this year and next year we'll really start to see it become a lot more profitable. Like I said, like the costs seem relatively fixed and now you're getting this increased regulatory clarity. Like you know, Bitcoin's doing really well, more volumes and hopefully it can keep those costs relatively fixed and ramp revenue significantly. So I'm I'm pretty excited for that. >> Let's get into what I would uh I'm going to self-describe the as the most interesting part of the conversation, which is the most misunderstood, I would say. Um >> definitely, >> which is the data center business. So, Matt, I'm going to tee you up, I think, for a conversation here, Duncan, before I'm going to pause actually the screen share and just actually talk more

holistically about just like I don't actually let's let's not even talk about Galaxy for a second here. Matt, can you just tee us up for a conversation around like what is happening uh macrolevel hyperscalers, open AAI, anthropic data centers, electricity, compute. Give us the like lay of the land of what's happening right now. >> Yeah. So, I mean, I think just in the past week alone, Meta yesterday came out and said they're going to spend over hundred billion dollars on on capex next year. Microsoft similar amounts. Um and and Google and and Amazon are also raising their capex guides as well because what all of these large hyperscalers are really doing is is investing in data center capacities. So

that's like the physical building itself and then also the NVIDIA chips that go inside of the buildings to to train their various AI models and to build compute capacity so that their customers such as like OpenAI is a customer of of Google and Microsoft so that OpenAI can can train their AI models. Um so if you think about like AI workloads, they're extremely power intensive because these models are processing enormous quantities of data. So for these AI data centers, you really want as much power as possible at a single location. Um because then you can basically maximize the amount of GPUs that you have together in one cluster and and train

the largest model possible. Um and then what what also makes these AI training data centers a little bit or actually a lot more different than the current data centers that exist today is they don't have to be near the end users. So, just some examples of this. Meta came out and said that they're going to build a two gigawatt data center in Louisiana that's going to be roughly the size of Manhattan. Um, XAI is building a one gigawatt data center. >> Sorry, sorry. Meta is building a data center in Louisiana the size of Manhattan.

>> I think Suckerberg compared the size of the DSO campus to Manhattan. Um, and just like another >> I actually sorry I listened to a a weird podcast with Sam Alman and Theo Vaughn, which was the crossover you didn't know that you needed, but you you did actually. Um, and he's uh Sam's like, "Yeah, you know, pretty likely that uh the entire world will just be covered in data centers, and that's the only thing that will in, you know, 50 years, the only thing that we'll build physically is data centers." Awesome. Doug, you're you're muted, but >> yeah, >> it's definitely a mustwatch mustwatch podcast.

>> Um, but yeah, so like the other thing is you want as much cheap electricity as as you can get as well. So basically bringing that all together, it somehow basically galaxy bought this bitcoin. Wait, before getting Wait, hold on. Before getting into Galaxy, you had a slide in your uh research which it talks about the value of a power contract. And if you're watching on YouTube, you can see this. If you're if you're just listening, you maybe Matt, you can walk us through can you walk us through the value of a power contract >> and how it flows like you know this person flows to this person flows to this person goes back to the utility provider.

>> Yeah, for sure. So like your your AI apps which is obviously at the top of the stack that's like your chat GBT um and that's drawing on compute from the underlying model. So in that case it would be from OpenAI's model um and then OpenAI is renting that compute. So they don't actually own the the GPUs they're renting GPUs from Microsoft uh from Coree and from Google. So th those are basically those companies are the hyperscalers. So that's your Amazon, Microsoft Google Oracle and Coreweave. So they're buying these Nvidia GPUs, putting them into these massive data centers, and then they're

renting out the compute capacity from those GPUs to their various customers. Um, and these hyperscalers, they both build their own data centers. So, they have pretty big in-house real estate development teams that can go out and and build these things green field like basically from scratch. And then they're also renting third-party data center capacity. So, that that's where Galaxy would come in with Helios is a hyperscaler needs data center capacity. So, they they they go out to data center developers. um and try to procure that capacity and move their GPUs into the the developers data center. Um what what's really happened is that until the

emergence of AI with chat GBT that power demand in the US has been pretty flat for the past couple of decades. Like the manufacturing and factories have basically moved offshore. So you're like moving offshore these really energy intensive workloads and then also like the energy various like systems like think about your HVAC it's got way more energy efficient over time. So like as a result of those couple of factors there really hasn't been much expansion of of the grid >> or the energy supply in the US up until recently with this AI boom. Um and now there's like various forecasts out there. So there's Goldman Sachs and

Anthropic both put out reports in the past couple weeks that basically said the US data center uh capacity is going to need to double over the next couple of years. So basically you have all these hyperscalers who are scrambling to increase their data center capacity and they're all sort of in an arms race to develop the the best model. Um and that's sort of where Helios comes in because Helios when when Galaxy acquired it >> sorry I know I keep interrupting. I just want to make sure I fully understand it. So basically you've got chat GBT.

ChatGBT is kind of uh is connected to OpenAI and using the the model. The model is using leverages uh the hyperscalers like Microsoft and Amazon and stuff like that. The hyperscalers are purchasing these GPUs from Nvidia. Um but really the important part for this conversation is that the hyperscalers need need their need uh rent or they need data center space and they do that in two ways. one is they actually own data center space themselves. Um, and like you know, you might have the the Amazon data center self-built data centers and stuff like that. Uh, you might have, you know, Meta building their thing in Louisiana that's the size of Manhattan. Uh, but also to accelerate it and to speed it up, they rent data center space from third party

data center owners. Is that that's >> that's exactly right. >> And and G where Galaxy comes in here is they own this thing called Helios, which we'll talk about in a second. And that would be uh that that would be a third-party data center owner. >> Yeah, that's right. And then there's one other there's one other component here which um is definitely worth mentioning is that Coreweave is obviously like a very new uh cloud compute provider and they don't build their like as of today they're not building their own data centers. They they rely entirely on thirdparty developers and then Oracle is the same way. So Oracle's been recently gaining a lot of share in this AI cloud compute market, but historically they

haven't built their own data centers. So you have these two sort of emerging cloud providers, neither of whom is building their own data centers that they're all trying to rent from third parties. So that's basically created this massive demand tailwind for somebody like Galaxy because they have the ability to deliver that third party capacity. >> Yeah. And could you share my screen quickly? I think this gives like a a good context just how important the energy side is. So I guess this is from a former Meta employee like saying that energy is the biggest bottleneck. Like a lot of people have been focusing on chips being the biggest bottleneck, but energy is actually a huge bottleneck.

Um, and so that's why it's like, you know, these Bitcoin miners that have these huge energy contracts that they've secured, you know, pre the AI boom are now converting into AI data centers because it's like way more lucrative. So, you know, even if you have the money, you can't even spend it because >> so what so for people who can't see this tweet, what it says is even if Meta or scroll up a little. Okay, an interesting comment from a former Meta employee. Energy is the biggest bottleneck right now. Even if Meta uh oh wait, I lost it. Even if Meta wants to spend 100 to 150 billion on capex for AI infrastructure, they can't. It's not just Nvidia.

Transformers, power equipment, cooling equipment, and the availability of power is all limited right now. Schneider Electric is completely booked until 2030. Even if you have the money, you can't spend it. So, it's Yeah, it's funny. It's like you you are starting to realize that kind of the capital in the world feels uh infinite right now and it feels like there's kind of just an unlimited amount of money to go into these things. But the bottleneck is actually uh the physical centers. >> Yeah. >> And you you can't you can't even start construction on a new data center until you have all these various different permits and approvals. um which can take years to get because these utilities have to do all different types of studies to make sure that it's not going to negatively impact the grid by

bringing these new power loads online. So that that can take basically years just to get approved and then >> once you are approved you have to get all those very long lead uh power infrastructure items like transformers for example you it's going to take 24 months probably from from the time you order it to the time it gets delivered. >> Yeah. And then this is a cool chart that just shows like energy production in China versus the US. And like as Matt said like US energy production has like stagnated like pretty significantly. And now with AI like you know there's a lot of directives from you know the current administration like we need to get this power and like this show on the road.

>> So just very positive tailwinds for people >> like in this AI data center space. >> Yeah. China needs to catch. It's like a national security issue that like the US needs to catch up here. >> Over the years, we have seen a multitude of hacks, rugs, and bundled launches. The number one way that crypto traders can protect themselves and the wider community is through onchain analysis, knowing who is moving funds and where those funds are going. Paired with their new exchange, users can see what the top traders are buying and selling with Arkham Intel and then trade on that information with Arkham Exchange.

Arkham's exchange provides traders with the tooling and liquidity to take action in crypto markets based upon their onchain observations, bringing them the world's first exchange powered by crypto intelligence. To get started, follow the link in the show notes below. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. Agreed. Agreed. Let's get into Galaxy. Matt, I interrupted you like three times when you were starting to talk about it. Let's start. Um there is uh I think maybe take us back to 2022 or 2023 and tell us how Galaxy kind of came to have this mining business miner and then data center and the electricity contracts and t walk us through the whole story here.

Yeah. So, at the end of 2022, Galaxy basically bought the physical Helios data center facility, which was 200 megawws. Um, and it was used as a Bitcoin mining data center. And then they leased that space back to Argo, which is who they bought um the facility from. So, basically, Argo was a Bitcoin miner. They were under extreme financial stress in 2022 just because of the bare market in Bitcoin. Um, so to to to provide them with liquidity, Galaxy said, "Okay, we'll buy your data center and then we'll lease it back to you so you could still continue mining, but we'll own the physical facility."

And then basically since that time in in 2024 re at the end of 2024, that um agreement to to lease that space to Argo was was terminated because that's when Galaxy decided they were going to lease the space instead to to Cororeweave. Um, and Corey really figured out because they're basically like a scrappy new entrant into this AI cloud market. Um, and not sure if you guys are aware of this, but they they were an Ethereum miner way back when. So, they had experience and expertise in operating the the GPUs because those also used to be used for Ethereum mining. um and they they basically were trying to

essentially catch up to all those large hyperscalers in terms of providing AI cloud comput services. So they you know were were really scrappy um and and really quick thinking and they basically went to Core Scientific who they had a a small little relationship with. So, they're renting out a small portion of Core Scientific's data center space and and basically um told Core Scientific, "Yeah, we'll we'll we'll pay you more than you're making from Bitcoin mining if you let us use your data center um for our AI cloud comput services." Um, and then that's sort of where Galaxy came in is because they also had a relationship with Cororeweave just because Core was operating within the crypto ecosystem. And like we've

discussed, Galaxy touches pretty much everything within the crypto ecosystem. Um, and and and they're basically now taking that data center, Helios, which is in West Texas. They're already this has already started. They they basically removed all of the Bitcoin mining rigs from within the data center and basically gutted all the physical insides and are basically going to repurpose it um in terms of buying new electrical equipment and cooling equipment and and make it such that Coreweave can move their GPUs into that data center.

And this came because Galaxy was doing Bitcoin, Bitcoin mining, lending, right? And in 2020 or 2021, they had lent Argo a decent bit of money. Then Argo got on the wrong side of a of a bare market and maybe hadn't sold enough Bitcoin like a lot of the other Bitcoin miners did. And so my understanding is that the loan was backed the kind of collateral of the loan maybe was actually the mining site and then they Is this true or no? I'm not honestly sure. >> I believe that's that's the case. But so they paid something like 65 million for the site, I believe. But like I was, you know, >> so they bought so Okay, so Argo owned Helios. Galaxy bought Helios from Argo.

Galaxy had lent a bunch of money to Argo. Argo couldn't pay back the loans. They end up buying Helios from Argo. They as a Bitcoin mining site. Data centers end up ripping uh or excuse me, AI starts ripping. this data center goes from, hey, it could be a nice thing to p to to to mine some bitcoins to oh my god, this is the hottest commodity in the entire world. >> Yeah. >> Uh so in >> they hit the jackpot. >> Love Novagrats. He does seem to get very lucky uh at many I was listening to another podcast that he did and someone said uh he's like the luckiest luckiest businessman alive right now. And uh yeah, so he stumb stumbled upon this like incredible scare incredibly scarce resource which is Helios this this powerful data center and the the the scope of it or the SC oh excuse me and

then they got into uh uh they they found a single tenant for that data center which is coreweave right that's the to round out that story okay >> yeah so they have they have 800 megawatts of approved power so like they've already went through all the approval processes for that 800 megga Um, and 600 megawatts is is already signed to be leased out to Core Weave starting at the beginning of 2026. And Cor has an option to take up that last 200 megawatts. Um, they have an they basically a right of first refusal on that which expires in September and and Novo said publicly that he expects them to to take that option.

>> Yeah. talk about the size of the data center and just the scope of how big this thing is. >> Yeah. So, like Mark Zuckerberg literally said two days ago that that the one gigawatt data center that they're bringing online next year will be the largest data center in the world. So, what Galaxy's building with this first 800 megawatts, like if it was fully completed today, it would be one of the largest data centers in the world. um >> galaxies would be one of the largest in the world >> like 800 megawatts would would be up there in terms of one of the largest instruments in the world because you know Facebook is basically saying that their 1,00 megawatts is is is going to be the largest in the world. Mhm.

>> Um and just like more context behind how big 800 megawatts is digital reality which is a publicly traded data center re they operate over 300 data centers across the world and they have basically around 3,000 megawatts or three gigawatts of total power capacity. Um and it's basically like close to hundred billion dollars of enterprise value for that company. and and Helios at 800 megawatts would be roughly a quarter the size of Digital Reality, but but Digital Reality's actual data center facilities are each around 10 megawws because they have 3,000 megawatts spread across 300 data centers whereas Galaxy is building

800 megawatts in one single location. >> Um, so Galaxy now to summarize where we're at, they've got this strong balance sheet. they've got this kind of like the Goldman of crypto and now they've got the data centers to power to to power AI. Um get into maybe the numbers. I don't know Matt I'm picking on you a lot. Duncan jump in if you want or >> maybe quickly put on my screen just this will help contextualize how big the a little chat GPT work here but so you know Galaxy has 800 megawatts approved 1.6 1.7 gawatts under study. A really important part of this 1.7 gigawatts under study is that they they applied for this back in 2021 2022 still when

they were mining Bitcoin. So like if you think about the process um in Texas of approving new power you know it's kind of multifaceted. It's like you know who applied first who's going to actually be able to execute on this. So you know Galaxy is like executing with core right now. They have the balance sheet to build it out. They have the other relationships with like hyperscalers. Uh the head of Helios basically said that they've had like a bunch of these like hyperscalers tour the facility. So like they have these relationships, they have the balance sheet, they um got the uh Yeah. So So they have the balance sheet, they have the relationships, they were one of the first people to apply for this in Texas like ahead of these other Bitcoin miners or these new build data centers. And

they have like a bunch of people who used to work at Ot that work at Galaxy. So like they have like they understand how this system works and management has essentially guided towards like the 1,700 megawatts being approved in two tranches an 800 megawatt tunch and a 900 megawatt trunch and they've said like they're expecting the 800 megawatt trunch to be approved you know in singledigit months or kind of like before end of year and then if you just kind of compare that so yeah here's the Facebook one or the meta one you know 1.5 gawatt phase one scales to 5 gatt watts, 2.77 gawatts for Amazon, you know, multiple um projects totaling 1 gawatt for Microsoft. Um so like if

you kind of put this into context, it's in the same like order of magnitude as like the largest companies in the US in terms of them building data centers. So they're actually like this is a huge site and like you know Galaxy could be a top player in this new space and as Matt said you know digital reality has 3 gawatts across 300 locations that's kind of like data center 1.0 now we have data center 2.0 which is like you know multiple gigawatts in one location. So it's like a whole new business line that's going to experience like really rapid growth because of AI and Galaxy could be like a leader in this space.

So yeah. >> Okay. Matt, can you walk us through the economics of this and talk talk through some of the numbers both on the revenue side and the cost side? >> Yeah, for sure. So just on the 600 megawatt lease that Galaxy has signed today with Cororeweave, like excluding that option, um the Core We will basically paying Galaxy $900 million on average per year over the next 15 years. Um, and then the margins on that revenue are expected to be close to 90% because the lease is structured in a way whereby coreweave is the tenant is going to be

paying for most of if not all of the property expenses such as utilities. So basically you have, you know, $900 million of revenue assuming a 90% margin, call it $800 million of EBITDA. That's just a stream of cash flows that is coming in over the next 15 years to to Galaxy and it should cost around $5 billion total for for Galaxy to build that facility. And based off of what Galaxy Management has said around what type of financing they're going to use, they'll probably put in a billion dollars of equity from the balance sheet and then they'll they'll find a lender for the other four million

or$4 billion. Um, but if you model out the returns on on on that $1 billion e equity investment, it it's pretty insane how attractive they are just given you're going to be collecting $800 million a year over 15 years of just pure cash flow. >> Yeah. And you know, maybe if you share my screen again, I have like a little model. >> Duncan's like, "Dude, just keep my screen up, man. You're killing me." >> So, yeah, this is exactly what Matt just walked us through. So they have these two phases, a 200 megawatt phase 1, 400 megawatt phase 2, these two are already contracted with core which is live. Then that option we're talking about for phase three is an additional 200

megawws. Um so if you go over here into the adjusted IBIDA for phase one and two, which they already have contracted out, you know, you're looking at nearly 700 million in Ibida in 2028. And basically how these contracts work is they have like an escalator to like adjust for inflation and such. So like the rent checks go up over time uh over the 15-year uh lease period. If they get phase three, that's an extra 200 million in in Ibida for for them. So in 2028, they could be generating, you know, nearly 900 million in ina just off their current 800 megawatts of approved power.

Goldman Sachs had a multiple of 27x. Um, and so that's an enterprise value of 24 billion in 2028. You know, you subtract the debt needed of around 5.6 billion. Uh, that means an equity value of 18.3 billion. You divide by the total shares outstanding of 395 million. you get $46 per share alone in uh 2028. And then if you discount that back to today using um what Goldman said is a 12% discount rate, that's you know 30 bucks a share in present value today, assuming they

execute on on this buildout, which is you know greater than than the price of the stock right now on Helios alone. And then where things get like super and I should just mention this the Goldman Sachs number. So basically what they did I don't know why they they did this maybe Matt has some more color into the equity research uh world but they assume that Galaxy is not going to get the phase three in their projections. Then they picked this weird midpoint in between 2026 and 2027 where like even the phase one and two revenues haven't fully scaled up because like these tanches are going to be coming online over time. you know expected like full completion date for um phase one is the third quarter of 2026 and the third

quarter of 2027 for phase two. So they kind of picked this like weird in between place between 2026 and 2027 to get their 200 million EBI a number and then you know you do the same math and they say it's going to be worth $8.50 a share. But if you instead think that they're just going to get phase three um approved or like Cory is going to exercise their lease and then you discount back from like 2028 numbers, it looks a lot better >> at this $30 a share. And then where things get super crazy is if you go into them getting, you know, either part of the 1.7 gawatts approved or or the full 1.7 gawatts approved. And that's where

things get like really silly. So, same math. Um, you're talking about in 2030 or 2032, you know, 50 billion in or sorry, 36 billion in equity value, 57 billion in equity value if they get both trunches, uh, divided by the same amount of shares outstanding, that's like $145 on Helios alone in 2032 if they can execute on this. >> Uh, so, all right, >> Matt, Matt, take us back. So, okay, Duncan. Moonboy math. Good. I like it. I like it. Matt, take us back maybe into reality a little bit. Or or or you agree with uh with with this model that Duncan has?

>> Yeah, I think like the way we thought about it in our report was just to sensitize how much how many megawatts would get approved and then to run the EBITDA um per megawatt based off of the existing lease that they have with coreweave. So basically >> if they had the same economics on their core lease for the entire 2.5 gawatts um at Helios like we're talking tens of billions of dollars of potential equity value. So, I think there's there's obviously various different ways you can try to estimate what this is worth, but I think what's

been approved today and what's on lease today with core beef is probably worth um high single digits to to to 10 billion alone. But there's just all this embedded upside um in the potential for them to not only expand with corewave for init for an additional 200 megawws but then if they also get um the part of the 1.7 gigawatts approved you could be looking at some some serious seriously big numbers. Um, but I think it's like important to just call out that it's really hard for a new data center developer to sign a lease with one of these massive cloud companies like Galaxy because they had a relationship

with Cororeweave from way back when when when Coree was a crypto company. That sort of got them that that got their foot in the door. And then it also just so happened that Cororeweave was willing to take a risk on someone like Galaxy building them an AI data center because they're trying to catch up and become one of the largest AI cloud comput providers. So they need to be as as as sort of thinking out of the box as possible. >> How tough, Matt, how tough is this to do? Like if someone was like, "Hey, Jason, here's a billion dollars. Go build a data center." I'd be like, I mean, I got no clue where to start.

Could probably figure it out. But is that is that kind of what Galaxy is doing or do do they have this expertise or do they like how how do they know how to do this? >> Well, it's it's really twofold, right? So, you have to find a customer first. You have to find a a tenant because you're not going to be able to get project financing to debt fund a large portion of the capex that's required without having that customer first. So, like I was saying, like it Galaxy was fortunate in the fact that they had a relationship with Cororeweave and they basically um were able to parlay that into this this massive lease. But I think going forward in terms of attracting different tenants like someone like an Oracle or a Google

Galaxy having that lease with Corey is is a massive stamp of credibility >> because all these other hyperscalers know who Cory is because they're they're taking market share from them and and basically says to to all these other hyperscalers that Galaxy is reliable. It can be trusted for one of these massive um construction projects. But to to your question again, having um relationships with the best contractors because obviously the developers are going to use various um contractors to to actually build these data centers. And there's been some soothing online from a guy on Twitter um that goes by Stefan Vanderlux. I'm probably butchering his

last name, but >> this guy is a must follow on Galaxy. This guy is a detective. So he he basically he basically did some soothing on LinkedIn and and found out that Galaxy is working with one of the best contractors in the data center development game. So I think the fact that Galaxy can go to somebody like an Oracle or a Google if they get this additional power approved and say like hey look we have a massive $3 billion balance sheet. We have relationships with some of the best contractors in data center development and we have a lease with Cororeweave who is obviously everyone knows in the the AI cloud compute world like we are very capable of of building you also a massive data

center at Helios and I think that's a pretty credible pitch whereas all these other Bitcoin miners are are basically lacking all three of those things. So when these other Bitcoin miners are talking about AI they don't even have They don't have they don't have the balance sheet to do it. They don't have the relationships with the contractors to do it and they don't even have a lease. So, I don't even think you can really compare Galaxy to most of these other companies that are trying to do this pivot. >> Can I try to describe um describe back what's happening here maybe and like actually try to summarize Duncan some of the the developments that you were saying? I just want to gut check that that I got this right. So, right now they have this data center in in Helios and um wait, that's what it's called,

right? Helios. >> Yeah, Helios. It's in uh West Texas, Dickens County. >> Everything's in West Texas. Um okay. So, they have 800 800 megawatts of approved power. Right now, they have a 600 megawatt contract signed with Coreweave that is providing roughly what did you say 900 million a year in uh in in uh in annual revenue. A lot of the costs of that flow back to Coreweave, which means there's really attractive economics on this. Um, and I think the what I read was the IBIDA margins on something like that type of deal are like 80 or 90%.

Um, which is great. The uh first 800 mil uh the me this this buildout they've already built or then they're going to build they've already built this build. >> Yeah. They they are basically in the process of doing so it's in two different phases three phases if if core weave exercises the extra >> oh the f okay this is the first trunch was the 800 megawatt the second trunch is the 900 megawatt >> so so um basically they have 800 megawatts of approved power they have an additional 1.7 megawws under study which I see I see in >> this is what they've this is what they've applied for >> yeah yeah they applied for this back in 2021 >> this is OT the Urkott power in 21. Okay, I get it. Okay, so they've got this 800

million with Core, 800 million, 600 million with with uh Corewave. Then they've got >> uh the the the next 1.7 gawatts of power that Galaxy's applied for with Helios and they applied back in 2021 or 2022. Um >> and they're expecting approvals in two tranches, an 800 megawatt tranch and a 900 megawatt trunch. They think the 800 megawatt trunch will come by end of year. It sounds like end of 2025 which means they will then have a total of 1.6 gawatt which is 800 plus 800 which then means they have an extra uh so 1.6 gawatt 600 gawatts have

already been or megawatts have already been contracted to coreweave. Um I'm trying to do all this mental math. Okay, that leaves them with a with one gigawatt left basically. um which they then need to contract out to another hyperscaler. Um and they've got a good deal with Cororeweave going, but if they can contract this out to another hyperscaler on roughly similar terms to Coree, that gives them an extra like roughly two and a half billion a year on 90% margins, which means I don't know the market cap there. I don't know the comps to use, but an extra two and a half billion of revenue on 90% margins is good. Did I Did I How How did I do, guys?

>> Yes, that's pretty good. The The one thing to add is so they have 800 megawatts approved, 600 with Cororeweave and then Cororeweave has a an option for another 200 megawws, which I think given, you know, the demand for for power right now and the existing relationship with Galaxy like Galaxy is building out like a bespoke data center for coreweave um in this phase one and two. I think it's likely that they'll take it in phase three, could be announced as soon as earnings, which is on Tuesday, August 5th, or they have until September to choose to exercise that or not. But personally, I'm not very worried about them being able to find either Cory is going to take that or they're going to be able to find another tenant.

>> Got it. Okay. Um, can they raise they Okay, so to build to do this build out, they need five or six billion. Um, and I think I read they plan to finance this with it was 20% equity, 80% debt, and they have the equity component secured. And they're now in the final stages of getting the the debt secured. So 80% of six billion, 4.8, they need 4.8 billion in debt. Who gives someone 4.8 billion in debt for something like this? >> There's a lot of the large bracket banks that have >> do these types of construction loans.

And then there's also a variety of private credit lenders such as something like a blue alowl that would honestly love to invest in a massive AI data center. There's like a lot of demand on the investing side to to do this. >> What about outside of Helios? Um I read somewhere that they're um maybe in one of your guys's note that they're they have a pipeline of like 40 Bitcoin mining sites that they're evaluating to either acquire or partner with. Uh we've been talking the whole time about the Helios center, but what about the other 40 Bitcoin mining sites that they're looking at?

>> Yeah. So, this th this was like they the the management team at Galaxy talked about this on the last earnings call and I wasn't expecting them to already be active in looking at new green field sites. I was really excited when they brought this up, but they basically have a team at Galaxy that's evaluating and gets shown deals for acquiring some of these green field or or brownfield sites, some of which are Bitcoin mining data data centers today that can be converted into AI data centers. So, they basically have a pipeline of all these different sites that they're looking at.

Um, and if they can find, you know, a good site where they think they can get a tenant at that site, it it seems like that's going to be something they're actively pursuing. So, I I mean, if you start doing numbers on like how much IDA they could be generating if they're able to do some green field sites outside of of Helios, it gets really exciting. Um, and it sort of brings back to a point we touched on earlier briefly, but this is basically a new market. These massive one gigawatt plus AI data centers don't exist today. And these, you know, quote unquote legacy data center developers such as Digital Reality and and Equinex.

their expertise and they've been around for decades, but they've been building these small 10 megawatt data centers that are basically completely different in terms of the actual cooling infrastructure and the electrical infrastructure and the rack design than than an AI data center. So, this is basically a massive green field opportunity for for new data center developers to come in and basically build the infrastructure for this massive AI boom. And it seems like Galaxy is is pretty well placed to to take a piece of of of this market just given that they're set up well now having that existing 600 megawatt lease with

>> Core Weave. And add on to that some comments from Noah Gratz from the most recent spaces and some podcasts I've listened to. So, uh, yeah, from the sleuththing online, Stefan seems to think that Cleo is the the developer, which is like a, you know, tier one data center developer and >> contractor mean the contractor. >> Sorry, contractor. And um, Novo basically told the story about how I guess the the CEO of that company was in New York. He's like, "Do you want to grab dinner?" And Nova's like, "You're the most important person in my life."

Yes, I'll get dinner with you. >> I I actually heard that. Yeah. Yeah. >> Other than my wife. you're the most important person in my life like other kids. So, um that is kind of a a funny thing. And then also Novo on on the most recent spaces I have it posted on my Twitter they did a couple months ago. I was able to ask a few questions to him directly and he was like I would be very surprised in you know the not too distant future if we're only talking about Helios as uh like the one site we're developing. So that's where things get like insanely crazy. Obviously, you know, the full them getting the full 1.7 gawatts of approvals in these two tranches isn't a sure thing, but if they are to get that plus, I think the

Goldman report said like the average Bitcoin mining site that they were looking at was around 500 megawws in um in in in contracted power or approved power. Then like you know you take this from from 2.5 gigawatts of power to like three or three and a half in this like massive new like you know green field business that Matt's talking about and that's where things could just get really crazy of like Galaxy as you know a really big player in this whole AI data center world. The other important point to note because they did uh they issued some shares a couple months ago after they list on the NASDAQ to help like pay for you know potential acquisitions or build out Helios uh is

that as these tranches come online like trunch one and two and then eventually trunch three um or sorry phase one and two and eventually phase three as those come online they are generating like you know huge rent checks each year which then they can go and borrow against to fund the rest of the development. So, they shouldn't need to, you know, >> uh, issue any more equity, >> which is really exciting where it's like they can kind of self-fund basically like all this build out as it starts cash flowing. >> Maybe take some counter-arguments here. Um, one of them might be that uh they're in they have one customer. If you were looking at anyone with one customer, you should discount that business heavily and think about like I mean there's key man risk and there's key customer risk,

right? So, uh, like I think there's generally should be concern around anyone having one customer and Galaxy shouldn't be any different. And specifically, I've read some fears about Core Weeb's ability to meet their rental payment obligations. Um, so I mean, if if your core customer starts failing to meet the rental payment obligations, that changes the entire scenario here. So, Matt, how do you how do you think about this? Yeah, I think that's that's definitely a valid risk and in my mind probably the biggest risk to the this business overall is that you're extremely concentrated from a customer perspective in that all of the data center revenue today is coming from Coreave. Um I guess

first I don't think a lot of people really understand Core's business model very well just because it's a new business model obviously. Um, and there's a lot of >> my screen up. He's literally has a whole section of this in the report I was just going to overblown. >> Yeah. >> So, like I don't think people really understand Cory's business. Um, basically when they came to IPO, everyone saw a ton of debt on their balance sheet and and you know people love to doom post and talk about the dot bubble and how this AI capex build is reminiscent of the dot bubble. So when they see debt and they see AI, everyone wants to um get really bearish. But the thing about Cory's debt is that most of

it is specifically earmarked to a customer contract that they have. So like the way Cory's business works is they go out and they sign a customer contract with someone like OpenAI where they're going to rent their compute capacity from Coree to OpenAI so that OpenAI can train their models. In order to provide that compute capacity to OpenAI, Core obviously has to buy GPUs. So they're drawing on this credit facility to finance the purchase of those GPUs and the debt from drawing on that credit facility is paid off in the couple of years following the beginning of that customer contract. So they they basically buy the GPUs from Nvidia using debt from one of their credit

facilities. They stand up that that capacity. They rent it out to OpenAI. OpenAI pays them for that. And that the cash from those payments goes to pay down debt. The debts paid back in two years. And these are typically four-year contracts. So in years three and four, they're basically pocketing the the difference as profit. So it's it's not as if all this debt that's on Cor's balance sheet is speculative in nature. It's specifically earmarked for a specific customer contract. Um, >> I think that's that's probably one of the main bare thesis on coreweave is is around the debt. Um, there's a couple others that we can get into, but

>> I mean you you had a couple other risks that you wrote wrote about in the research report that I thought were interesting. One is that um there there are these significant hurdles, right, in retrofitting traditional CPU based data centers um for AI purposes, right? If you look at traditional data centers, they're often times smaller, which means they're inadequate for LLM training. And they also like if you look at, you know, like website hosting or SAS applications, those are not that compute intensive. AI supercomput intensive. So traditional uh cooling systems and rack densities and things like that are kind of incompatible with uh modern like AI data center design. Um, sounds like you are not super concerned about that, but maybe that would drive up some of the costs if they're if they're not

factoring that in. >> Well, I think that's that's a benefit for Galaxy because like what you said is true. If you have a small 10 megawatt data center, if you're digital reality or Equinex and you own these small data centers, it's pretty much going to be economically infeasible for you to convert that 10 megawatts into an AI data center because like you mentioned, you need to retrofit all the cooling equipment, the electrical equipment, and just the the design layout of the data center itself because the the racks with with the servers and the GPUs are all different.

Um, but it just so turns out that these Bitcoin mining data centers are actually more readily convertible into an AI data center just because if you think about Bitcoin mining, right, like you're you're drawing on as much power as possible to do these massive computations to earn block rewards. So, it's it's it's sort of similar in nature to what these AI models are doing. So, it's easier to convert a Bitcoin mining data center than it is to convert one of these legacy smaller data centers that's digital reality or Equinex.

>> What about maybe the the last one which is uh uh claims that Nvidia GPUs have a useful life of only like one to two years. >> Yeah. So, that's something that's been popping up on Twitter a lot recently, but there's there there's people making an argument that because Nvidia ships a new iteration of their GPUs every one to two years that last year's model immediately becomes obsolete um because the new models are much more powerful. But this is just not grounded in reality at all.

Like basically Satia Nadella has gone on podcast and basically said yeah you you want the newest GPUs for training your models and then you just move your older GPUs into the actual application usage or inference so that they're still being used for five six years. It's not as if they're thrown out after the new ones are released. And then OpenAI has also said that only in 2024 they decommissioned some of these Volta V100s which is the model from 2018. So I think there's a lot of empirical evidence that says >> these AI customers are using these these chips for five to six years.

>> Let's um maybe as we start to think about rounding out this podcast, why uh I was trying to think of why. Okay, I hear you guys talk. I read the reports. Boom. very feels very bullish. Yeah. Price price goes up, data centers. Yeah. Makes a lot of sense to me. Why hasn't the market understood this? That's what what I was trying to think about. And one of the probably the biggest thing that came to my mind is it's a very confusing story. It's not a clean story. It's very confusing. And having the crypto business combined with the AI business that makes it very complicated.

The crypto business in and of itself is very complicated. But you combine this complicated crypto business with this AI business. and AI business wasn't like a clean story from the beginning too. Um, what do you guys think about uh if Novagrats came to you tomorrow, he's like "Duncan Matt, you two are deciding, should we split the companies or not? Should we split it out into two separate companies?" What What advice would you give him? >> Yeah. I mean I think I think in the future there's definitely a high chance that they're going to spin the data center off as a separate company because like at maturity the data center business is just a stream of cash flow.

So you could put it into a restructure like digital realtor Equinex for tax benefit purposes and you attract a whole different type of investor base. Um basically people are looking for steady dividend payouts. is is is a lot different than someone that wants to invest in a cryptofocused financial services company. So, I think at some point in the future, it's definitely going to make sense to to split them up, but for now, it probably makes sense just to keep them together because the data center business isn't generating revenue yet. It's not expected to start generating revenue into 2026. So, I don't think a lot of value investors would be interested in in buying a a data center business that's not

generating revenue yet. And then they also can leverage the the balance sheet that Galaxy has now today to fund part of this buildout. I think having that big balance sheet, as we've discussed, is a really a massive competitive advantage versus other data center developers. I think that $3 billion is more than digital or equinex have on their balance sheet. And those are both, like I said, like 70 80 billion companies. Um, but I think down the line it it definitely makes sense to to split them off. And if you look at their financial reporting, they've actually started this new segmenting where they're splitting up the digital assets business from the data center business.

So I think that's a pretty clear indication that it's going to be split off down the line. >> Yeah, I think Novo said on the space is, you know, if the market's not giving us adequate credit in like a year from now, then we're going to consider that more more closely. I think just in terms of like why, you know, we believe it's so cheap or at least why I believe it's so cheap is because like, you know, in this Goldman report, they're not, you know, ignoring the fact that Core Wave could take this next phase like exercise their 200 megawatt option or they could get 1.7 gawatts approved. It's just like hard for them to like bake that into their valuation, right? It's like these things aren't certain. So, like we're not going to necessarily bake it into our valuation. But if you share my

screen again, like they go through like the potential upside they see as like core exercising its phase three option, Galaxy, you know, getting additional approval and customers and then Galaxy, you know, expanding their their data center business. So in and and and they model that out here like you know if they get phase 1 2 and three and then you know a portion of the 1.7 gawatt approved or or kind of all of it approved then you know it comes out to very similar numbers to what's in in Matt's report and they actually use like a a better multiple than what Matt has used. Like Matt used uh a 22 1/2x multiple as kind of like his base case

here. Um and they're using like a 27x multiple. And if you look at like historical data center comps, um they've traded at, you know, 26 to 35x multiples on the high end. So it's not like the mark like it's not like the Goldman or kind of like people who are starting to look at Galaxy are saying that this isn't going to happen. It's just like very hard for them to like assign the chance of it actually executing since this is like Galaxy's, you know, first time doing this. They don't have like a proven track record.

But I think where there's like a real edge for people who spend a lot of time looking at the company is that like management has been very good at following through on everything. They've made like a ton of hires in the data center space. This is from Stefan. in the last four to six weeks, VP of construction, VP of in inventory management, VP of procurement, head of data center finance, head of data center growth and corporate development. They're looking for a bunch more roles. Um, they have this lease with Coree. So, you do definitely have to believe in the management that they're going to be able to execute here. And I think that's a massive reason why it's being discounted. You know, the other obvious one that you said is just like it's a [ __ ] complicated business. They have the balance sheet component, they have

the crypto component, they have the AI data center component. Um, how do you really, you know, square all that together? And then, you know, like Matt said, there's two very different investor bases who would be interested in investing in the crypto and balance sheet versus the data center business. So, I think that it trades at kind of like a discount to its like >> value. uh especially if they can execute on on these, you know, next phases or next tranches or acquisitions. So, that's kind of my take on it. It's also only been uplisted to the NASDAQ for like a couple months now, right? Like they were stuck on the TSX for four or five years and the last SEC kept on blocking them from uplisting. So, it's

still a relatively like new company in the eyes of investors. And you know, Goldman just dropped this report a couple days ago. Um, people are still just getting up to speed on Galaxy. >> Yeah, I mean it's it's really complex, right? You have the two separate businesses and then one of the business in in of itself is super complex. But I think once you sort of roll up your sleeves and and dig on dig into the the numbers and what's going on and what they've already contracted with core, it looks really undervalued. And I think it's just really a classic case of the market not fully understanding something. But as they sort of generate revenue at Helios beginning next year, I

think the store will become a lot more cleaner >> and it it should sort of rerate accordingly. >> So let's round out this podcast by just talking about the price of the stock which is I think trading at around what is it today? 26 I think it listed it was it was kind of 18 to 19 for a while. um since it got on NASDAQ in midMay, let's call it uh trading around like 1819 sitting went up to 31 32, let's call it, and now it's trading around 26. When is this um I don't know if you guys agree or disagree on this, but like when do you guys how do you get out of this? Is this a trade? Is it a long-term investment? Are you is there do you have targets that you're going to start taking profits? How do you think about

that? >> Yeah. So, just pulling up the chart and one more point on um just like kind of how these things cannot make sense for a long time. I'm pretty sure like they signed the 600 megawatts with Cororeweave like here during the tariff meltdown stuff and then it traded all the way down to like eight bucks. Um, so even with like that contract being live, like it traded like way down and then they list they announced their NASDAQ listing and you know it started to repric as like people are are finding more out about it and it's also done like just way more volume, way more liquid market at this point. How I think of it is so if we go to the Goldman

um report, I have a good tweet on this. So like I think if you get these 800 megawws at Helios fully contracted. So they already have 600 contracted. If Corore exercises the other 200 megawws you know that was the that was the sheet I showed here. Um that's like you know would be Goldman's 27x multiple would be $46 in 2028 just on Helios alone. Discounting that back to today is roughly 30 bucks. Um, so I think like a fair valuation for Helios right now is probably $30 a share just because that's just executing the 800 megawatt

approved. Then you have these like upside cases of trunch one, trunch two, and then you have to add in, you know, the balance sheet and the um and the crypto business. So the balance sheet is roughly like eight or nine bucks a share. And then Goldman, you know, estimates the crypto business. Um, you know, I think it was 6.5 billion. Uh, so maybe like, let me do some quick math. Uh 300. So I would look at it as like a sum of the parts, right? So 6.5 billion divided by 395. So that's another 16 bucks a share. So let's say, you know, nine bucks a share for the balance sheet, 16

bucks a share for the for the crypto business. That brings up 25 plus another 30 a share for Helios. Um, so that's kind of what I think it should be worth today, 55 bucks. And then, you know, if you assume crypto is going to do well, they acquire another site or get, you know, approvals on different tanches. Like I had this thread on Galaxy that really took off where I'm where I say I think it could be worth like a $100 a share in the next few years. So, that's personally how I'm thinking about it.

It's definitely a long-term investment. I think as they execute on the data center business, if they continue to execute there, then like I'm really happy to hold this for a very long time. I'm bullish on crypto. I'm bullish on AI. I'm bullish on the management team. So, that's kind of how I think about it long term. Obviously, this is not financial advice. Go and do your own research. I've spent a lot of time on this. This is just my opinion and how I'm, you know, Galaxy is my my largest uh investment right now. >> Yeah. The only other thing I'd add to that and I I definitely agree. I think the way I'm treating is just sort of take it earnings call by earnings call because that's when they really go through all these major updates on the data center business and all of them

have been extremely positive to date. Um it's really just an execution story and there hasn't been anything that I've seen so far that makes me believe that they're not going to execute. And the management team here, I think, is extremely strong. Like Novagrats, I don't really need to talk about him, but if you think about building out this data center business, right, you need to develop relationships with some of these massive technology companies. And I don't think there's anybody better positioned in the crypto universe to develop those relationships than someone like Anovocrats. And then there's also the the chief investment officer of Galaxy, um, this guy Chris Ferraro. And if you look at his background, he came

from a fund called HBS Investment Partners that I'm very familiar with from my past life um in finance. And I think his experience at HBS Investment Partners is highly relevant um for for what he's doing today and leading the buildout of that data center business. So you you basically have these two execs and I don't even think you could really compare them to any of the other execs um in the sort of broader crypto ecosystem. So that's something else I think is really bullish.

>> So Matt, when what do you have like a price that you're looking at for this or no? No, I think it's just sort of a monthby-month type of evaluation and but really like you're as Duncan mentioned, you're getting exposure to two of the biggest trends in crypto and AI in this the same stock. And if you do the sum of the parts, it looks undervalued here. So, I I definitely plan on holding for clan truster. >> Uh guys, anything else that we missed? This is a yeah big big conversation on Galaxy. Anything that you guys wanted to cover that we didn't.

>> No, maybe the the last one cool point that I think is underappreciated and then we can wrap up unless Matt has any other comments is just like you know it trades at a discount cuz it's kind of this like conglomerate of a bunch of stuff. But if you look at like what's happened with them in the past, they've actually like generated a lot of synergies from this. Like we said, they were loaning to Core Wee back when they were mining ETH. They had a relationship there. they were able to get on the core IPO and then they were able to lease you know the 600 megawatts out to Coreweave. So they like that was like their crypto business actually like influencing their data center business then you also had you know the Argo blockchain relationship where it's like they were lending to them and then they were able

to buy Helios. So it's like since their tentacles are like so far and wide within everything to do with crypto and now like you know the emergence of AI has has come up and you know the power contracts are super valuable. Um they really have I think that's like a very underrated element of their business where they just have all these kind of like synergies that are very difficult to value but like look what their crypto business allowed them to do on the AI side. And I think, you know, with stuff like GK8 or all Unity, like there could be other kind of green shoots of positive surprises where it's like, you know, something in their crypto business allows them to make an acquisition or do a joint venture that adds like a ton of value to to the company long term.

>> Yeah, Matt, appreciate you, Duncan. Appreciate you guys. Um, we will link to a bunch of stuff in the show notes. So, if you guys want to dig a little deeper, we can share some of Duncan's uh threads and uh Matt wrote a great piece of research. So, we can we can share. >> Everyone follow Matt on Twitter and read this research piece. This is like when I read this, this is what gave me like the conviction during the tariff stuff to really like jump in and he's uh you know definitely leading voice on the whole like Bitcoin mining AI data center side. So, definitely follow Matt here. I'll pull up his Twitter quickly, but he only has like a thousand followers.

Criminally, >> now what's your Twitter handle? Writtenhouse. >> It's our house research. Written House research was taken. >> Our house research. >> Criminally underfollowed. >> Yeah. Cool. All right. Well, thanks guys uh for for doing this. Duncan and Matt. Appreciate you guys. And thanks for listening, folks. And I'll see you Friday for the roundup. Cheers. >> Bye.