Morgan Stanley: Galaxy Digital: Data center valuation bet awaits test of tenants and financing costs

Why wait for a new tenant when power approval is already in place?

Helios II has approval for 830 megawatts of power, but a new tenant has yet to be secured. Galaxy abandoned a potential lease transaction over the summer; management cited regulatory hurdles, financing difficulties and concerns about credit support from the potential counterparty.
Management believes approved power that can actually be delivered in 2028 is becoming increasingly scarce, strengthening the company’s negotiating position; the company is in active discussions with several investment-grade counterparties. Helios II is scheduled to come online in mid-2028, and the company believes it still has time to wait for the right tenant and lease terms.
Morgan Stanley is confident the company can secure an attractive lease for this power, but investors remain skeptical that rents can reach the level agreed with CoreWeave for Helios I.

Galaxy expects to seek new debt financing for Helios Phase III in the first half of 2027. The company says the project’s equity funding is in place and it has no immediate need to enter the financing market.
By comparison, Phase II issued $3.5 billion in senior secured notes in July at a coupon of 9.875%, raising investor concerns about financing costs and returns on new development. Management attributed the high rate in part to deteriorating financing markets during the issuance and the market’s assessment of tenant CoreWeave’s credit risk.
Morgan Stanley believes a rate below 9.875% on new financing would be a positive catalyst. Management also discussed opportunistically refinancing the $1.4 billion Phase I construction loan once the asset stabilizes, to release equity capital; this is not a prerequisite for financing subsequent phases.

In the third quarter of 2026, adjusted gross profit from digital assets was $71 million, up 9% quarter on quarter; trading volumes rose 12% quarter on quarter against a flat overall market, and the average loan book grew 27% to $1.8 billion.
Adjusted EBITDA, however, swung from a $11 million profit in the previous quarter to a $9 million loss, a gap of approximately $80 million from adjusted gross profit. Aside from one-time accounting adjustments, the company continues to invest in the business for the long term; management expects the gap between the two metrics to narrow as trading volumes and capital flows recover from low levels.
Morgan Stanley notes that investors want to see more durable, stable fee income before assigning the business a higher valuation multiple.

Morgan Stanley maintains its Overweight rating and $43 per-share price target. Of its approximately $17 billion base-case equity valuation, data centers account for approximately $14.2 billion, or 84%; digital assets account for approximately $1.5 billion, or 9%.
The data center valuation includes approximately $3 billion for Helios I, approximately $7 billion combined for Helios II and Merlin I, and a probability-weighted approximately $4.2 billion for 2.6 gigawatts of eligible Batch Zero sites. New leases and progress in energizing projects are therefore particularly important to the valuation.
The bank also cut its bear-case equity valuation from approximately $7.3 billion to approximately $3 billion, switching to third-quarter 2026 total book value. This stress case assumes no additional value for contracted sites that have yet to generate rent, terminal value or real estate assets.