Benchmark has nearly doubled its price target for Hut 8 (HUT) from $85 to $165, attributing this increase to the company's Beacon Point AI data center project, which significantly enhances its valuation and marks a shift towards becoming an AI infrastructure provider.
Mark Palmer noted that Hut 8's Beacon Point initiative positions the firm for substantial growth.
According to the firm, this new target reflects a potential upside of approximately 65% from Hut 8's current trading price, which is around $100.
Analyst Mark Palmer maintained a buy rating on the stock, asserting that the market has not yet fully recognized Hut 8's swift advancements, especially after the company's shares dropped nearly 30% in the last six weeks despite ongoing positive operational trends.
In his report, Palmer stated, "We are raising our price target for HUT to $165 to incorporate our estimate of the contribution of the company’s Beacon Point AI data center campus, the second and larger of its two commercialized hyperscale projects, and to reflect the acceleration of its evolution into something akin to a power-first data center REIT with an embedded development machine."
As Bitcoin BTC$63,875.61 miners increasingly diversify into AI and high-performance computing infrastructure, they aim to meet the rising demand for data centers amid fluctuating bitcoin mining profitability.
Firms like Hut 8, Core Scientific (CORZ), Hive Digital (HIVE), and Bit Digital (BTBT) have adjusted parts of their power and infrastructure to accommodate AI workloads, anticipating that long-term contracts with large-scale clients will yield more stable and lucrative revenues than cryptocurrency mining alone.
Hut 8 has secured two 15-year, triple-net, take-or-pay leases for a total of 597 megawatts of IT capacity at its River Bend, Louisiana, and Beacon Point, Texas, sites. Palmer estimates that these leases represent $16.8 billion in contracted lease value, which could increase to $42.8 billion if renewal options are taken up by the tenants.
Palmer emphasized that the Beacon Point agreement was a major contributor to the elevated valuation. He pointed out that the initial phase of the project alone has a base-term contract value of $9.8 billion and is projected to generate about $655 million in average annual net operating income.
Additionally, he highlighted Hut 8's financing approach, mentioning that the company recently secured $4.25 billion in investment-grade project financing for Beacon Point, following a $3.25 billion raise for River Bend. These financing arrangements support management's strategy of reducing capital costs by transforming development assets into long-term cash flows.
Beyond its current projects, the report underscores Hut 8's development pipeline, which exceeds 9 gigawatts across various stages, signaling a promising long-term growth trajectory.
Although Benchmark anticipates that the second-quarter results may be impacted by mark-to-market accounting for bitcoin holdings and the consolidation of American Bitcoin (ABTC), it believes these factors may obscure the fundamental performance of the company's AI infrastructure division.
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