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Galaxy Digital Inc. Class A common stock (GLXY $36.87)
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Nebius Group N.V. (NBIS $87.69)
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CoreWeave Inc. (CRWV $78.59)
Q: Hi 5i Team,
I have been researching the financing models of neocloud operators. It appears that these companies are financing their GPU infrastructure investments at capital costs that significantly exceed their return on invested capital (ROIC). In other words, their cost of capital is materially higher than their ROIC, resulting in a value destruction dynamic where each dollar of new capital deployed actually destroys economic value rather than creating it.
This situation raises questions about sustainability:
1. How are CoreWeave, Nebius, and similar operators financing these substantial infrastructure buildouts, given the mismatch between capital costs and ROIC? Is this model sustainable in the long term, or does it rely on continuous refinancing and favourable market sentiment?
2. Considering Galaxy Digital's recent announcements regarding data center partnerships and infrastructure initiatives, how exposed is Galaxy Digital to these neocloud operators? What percentage of GLXY's revenue or growth expectations is tied to these relationships?
3. If the neocloud financing model proves unsustainable, meaning operators like CoreWeave or Nebius encounter difficulties with refinancing or solvency, what impact would that have on Galaxy Digital's business and financial projections?
I would appreciate your perspective on whether this concern regarding capital structure is reflected in GLXY's valuation, or if it poses an underappreciated risk for investors.
Thank you for your continued insights and research.
Best regards,
Matt
I have been researching the financing models of neocloud operators. It appears that these companies are financing their GPU infrastructure investments at capital costs that significantly exceed their return on invested capital (ROIC). In other words, their cost of capital is materially higher than their ROIC, resulting in a value destruction dynamic where each dollar of new capital deployed actually destroys economic value rather than creating it.
This situation raises questions about sustainability:
1. How are CoreWeave, Nebius, and similar operators financing these substantial infrastructure buildouts, given the mismatch between capital costs and ROIC? Is this model sustainable in the long term, or does it rely on continuous refinancing and favourable market sentiment?
2. Considering Galaxy Digital's recent announcements regarding data center partnerships and infrastructure initiatives, how exposed is Galaxy Digital to these neocloud operators? What percentage of GLXY's revenue or growth expectations is tied to these relationships?
3. If the neocloud financing model proves unsustainable, meaning operators like CoreWeave or Nebius encounter difficulties with refinancing or solvency, what impact would that have on Galaxy Digital's business and financial projections?
I would appreciate your perspective on whether this concern regarding capital structure is reflected in GLXY's valuation, or if it poses an underappreciated risk for investors.
Thank you for your continued insights and research.
Best regards,
Matt
