Hut 8's AI Deal Fuels Optimism Amid High Execution Risks

What happened

Hut 8's stock has surged 149% over the past year, driven by optimism around its $7 billion, 15-year Fluidstack data center lease at the River Bend campus, which is backed by Google and expected to generate substantial revenue from 2027. However, a Seeking Alpha article acknowledges that the stock trades at a premium and faces execution and capital-raising risks due to Hut 8's current cash shortfall. The DeepValue report critically notes that despite the deal, Hut 8's current revenues are dominated by cyclical bitcoin mining, with negative free cash flow and heavy reliance on BTC-backed financing. Financials reveal a P/E of 29.86x and EV/EBITDA of 12.86x, with free cash flow deeply negative at -$490 million for the period ended September 2025, indicating high valuation and financial strain. Therefore, while the AI deal provides long-term potential, near-term risks from financing, dilution, and BTC volatility make the stock a speculative bet with limited margin of safety.

Implication

The Fluidstack deal offers significant upside if executed flawlessly, but revenue generation starts only in 2027, leaving Hut 8 dependent on volatile bitcoin mining in the interim. Capital-raising needs could lead to dilution, especially given the $1 billion ATM program and potential BTC price declines affecting collateral value. Execution risks include project delays, cost overruns, and reliance on a single tenant, which could undermine the projected $454 million annual NOI. Regulatory and political risks from American Bitcoin's Trump and Bitmain associations add further uncertainty to the consolidated operations. Given the DeepValue report's 'POTENTIAL SELL' rating and probability-weighted value below current price, investors might consider waiting for better entry points or clearer financing milestones.

Thesis delta

The new article reinforces the bullish narrative around Hut 8's AI pivot but does not materially alter the critical thesis from the DeepValue report. The report already factors in the deal's potential while highlighting substantial execution and financial risks, such as negative free cash flow and dilution from capital needs. Therefore, the investment thesis remains unchanged: cautious with a skew towards downside risk over the next 6-18 months.