Benchmark raised Hut 8's price target to $165, citing growth from its AI data center project, Beacon Point, amid a shift towards AI infrastructure.
Benchmark has significantly increased its price target for Hut 8 (HUT) from $85 to $165, driven by the company's Beacon Point AI data center initiative, which enhances its market valuation and signals a strategic pivot towards becoming a provider of AI infrastructure.
Analyst Mark Palmer Highlights Growth Potential
This new target suggests a potential upside of around 65% relative to Hut 8's current price, approximately $100. Mark Palmer, the analyst, maintained a buy rating on the stock, emphasizing that the market has not yet fully appreciated Hut 8's rapid advancements, particularly as the company's shares fell nearly 30% over the past six weeks despite positive operational trends.
Palmer explained that the price target increase reflects the expected contributions from the Beacon Point AI data center campus, which is the larger of Hut 8's two commercial hyperscale projects. He described Hut 8 as evolving into a power-first data center REIT with significant development capabilities.
As Bitcoin miners pivot towards AI and high-performance computing, they are adapting their infrastructure to meet the growing demand for data centers amid fluctuating Bitcoin mining profitability. Companies like Hut 8, Core Scientific, Hive Digital, and Bit Digital are shifting towards more stable revenue streams through long-term contracts with large clients.
Hut 8 has secured two 15-year triple-net leases for a total of 597 megawatts of IT capacity at its River Bend and Beacon Point sites, translating to a projected $16.8 billion in contracted lease value, which could rise to $42.8 billion if tenants exercise renewal options.
Palmer noted that the Beacon Point project significantly contributes to Hut 8's enhanced valuation, with an estimated base-term contract value of $9.8 billion, expected to yield around $655 million in annual net operating income. Additionally, he pointed out that Hut 8 recently obtained $4.25 billion in investment-grade project financing for Beacon Point, building on a previous $3.25 billion for River Bend, which aligns with the company's strategy to reduce capital costs by converting development assets into long-term cash flows.
The report also indicates Hut 8's development pipeline exceeds 9 gigawatts across various stages, suggesting a robust long-term growth outlook. While Benchmark expects second-quarter results to be affected by accounting for Bitcoin holdings and the consolidation of American Bitcoin, it believes these factors may not accurately reflect the fundamental performance of Hut 8's AI infrastructure division.
