Michael Novogratz, the billionaire founder and CEO of the crypto financial services conglomerate and artificial intelligence data-center provider Galaxy Digital Inc., said the anxiety in global credit markets over AI spending is on the verge of easing.
“We have indigestion in the credit market,” Novogratz said on a conference call Tuesday following the release of Galaxy’s third-quarter results. “It is probably close to peak nervousness. There’s not an easy path out, but I think time is going to heal this thing.”
Yields on CoreWeave Inc.’s junk bonds recently surged to levels usually signaling distress after the company’s co-founder said the AI cloud computing provider was exploring ways to borrow in investment-grade debt markets. That raised broader concerns about how AI companies will continue to fund themselves. CoreWeave is a major tenant of Galaxy’s Helios facility in Texas.
Novogratz cited the raising of equity by Meta Platforms Inc. and the planned initial public offering by Anthropic PBC as signs of relief. Meta is seeking to raise $98 billion for its AI spending. Anthropic is poised to be the first major US firm focused solely on building AI software to make its market debut.
“More equity, less credit is one way to think about it,” Novogratz said. “This last week to some degree was good for the credit markets because we saw this massive amount of equity.”
In the quarter, Galaxy reported higher-than-estimated revenue and earnings. Net income was $323 million, or 66 cents a share, down around 36% from the year-ago period. Revenue was $8.06 billion, compared with an estimate of $7.8 billion from a Bloomberg survey of analysts. Revenue was also down from the year-ago period. Shares of Galaxy rose as much as 8.3%.
A potential end to the war in Iran is another reason why Novogratz sees the credit markets stabilizing, since that is likely to reduce pressure on the Federal Reserve to increase interest rates and curb inflation as oil prices would fall.
Galaxy benefited from its push into the AI data-center business during the quarter, as it continues to energize more operations, fulfilling its contract with CoreWeave. Data centers generated adjusted gross profit of $79 million and adjusted EBITDA of $69 million, the company said in a statement Tuesday.
The crypto conglomerate is subject to big swings in both the digital-asset and data-center industry. Galaxy, which has a multi-billion dollar contract with CoreWeave, has converted its Bitcoin mining assets into data centers that support AI applications.
A prolonged crypto market rout this year has pummeled share prices of public crypto companies. Galaxy has a slew of businesses in the digital-asset space, ranging from trading, asset management and brokerage. Galaxy’s shares are still down almost 60% over the past year.
Delays in the energization of operations, high-performance computing counterparty risks as well as decrease in crypto prices affecting collateral and digital asset values on the balance sheet are among the company-specific risks, according to a report by BTIG. The bank has a buy rating for Galaxy. The firm has been on time and on schedule, delivering the first 200 megawatts of gross power over the summer.
Galaxy said it has been in talks with big tech firms that would consider becoming tenants for its future AI data-center facilities with the total gross power pipeline to over 5.7 gigawatts, according to the earnings report.
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