Datacenter Expansion and Strategy with Simrit Dhinsa

0:00Alex Thorn:Welcome to Galaxy Brains.

0:25Alex Thorn:Welcome back to Galaxy Brains. As always, I'm your host, Alex Thorne, head of firm-wide research at Galaxy. Bitcoin, not zero. We have a great episode for you this week. Simrit Dinsa, VP of data center capital markets at Galaxy, is our guest. We'll talk with Sim at length about Galaxy's data center business. Helios, phase one, expansions, energy markets generally, the data center markets. And of course, we'll talk about AI generally, some of the interesting controversies that everyone's been following and opportunities and growth and its impact on markets. Very good interview with Sim. I think you'll really like meeting Sim.

1:02Alex Thorn:He's worked here for a long time, so I'm really happy to have him on. Before we get to any of that, I need to remind you to please refer to the link to the disclaimer in the show notes and note that none of the information in this show constitutes investment advice or an offer recommendation or solicitation by Galaxy or any of its affiliates to buy or sell any securities. Let's go now to our guest, Simrit Dinsa, VP of Data Center Capital Markets at Galaxy. Sim, welcome to Galaxy Brains. Thanks for having me, Alex. Very excited. I'm very excited, too. You guys are very, very busy, so it's not often that we have someone from our data center business on this podcast.

1:34Alex Thorn:But we have had Austin Storms in the past. We've had Blake in the past. I think that's it. And actually, I'm not sure if we've had either of them on since we fully transitioned from Bitcoin mining to data centers. So this is very exciting. I have a lot of questions for you. But what has it been like? You worked on our Bitcoin mining portfolio before this giant transition that's now deeply underway into our data center business. What's that transition been like? It's been super exciting. So I've been at Galaxy now for four years, along with Austin, along with Brian, along with Blake, and a few others.

2:09And being able to kind of make our presence in West Texas, grow up that presence initially on the Bitcoin mining side, and really then try and pivot the business to a higher value use case for that power capacity was challenging, but a very exciting ride for us. And now we're at a point where we're really executing, which is phenomenal for the business.

2:32Alex Thorn:Yeah. So I visited Helios, I think maybe three years ago. Absolutely magnificent campus then. The main data hall there, which of course at the time was mining Bitcoin, absolutely enormous. The scale in person, I know Galaxy releases sometimes the cool drone footage and stuff. And it's really hard to actually recognize how big it is until you see it in person. but it's only getting bigger. Yeah. I mean, I think when we, when we bought the site, it was like 160 acres. We've grown that now to 2 ,200 acres of just contiguous land. So massive, massive plots of land around, around there. But, you know, it's a couple of football fields in length.

3:12You can see people working all over the place. I think we had like 1 ,200 or something contractors during construction of just phase one.

3:19Alex Thorn:Yeah. And, and the scale of it is, is at another level compared to what we were used to on the Bitcoin money side. So just for, I know a lot of our, shareholders on X are very tapped into what these mean, but maybe not all of our audience. Phase one was the transition or retrofitting of the existing Bitcoin mining data hall into a data center. That's right. Yeah, that's right. So when you look at our 800 megawatts that we have leased out to CoreWeave in gross capacity, the first 200 megawatts is phase one, which at the end of Q2, we fully brought online, delivered to CoreWeave, rents starting to come in.

3:59Very, very exciting milestone for us. And it was, call it 12 to 14 month construction timeline, which is a very, very fast schedule for building out fully redundant systems. It is a tremendous feat for the business and super exciting for us because now when you look at kind of the broader AI data center landscape, these are still relatively new builds at this scale. The hyperscalers have been doing it for several years, but when you look at the traditional data center operators that are public, it's really a lot of the Bitcoin mining guys that started to make their pivot into the AI side, started to sign these big deals, with Galaxy being one of the first ones and now being one of the first ones to actually deliver on those deals, which the execution capabilities of our team couldn't be more proud of the team.

4:49and what we've done across the board from the finance side, construction side, and now as we move into operations.

4:53Alex Thorn:Because the most traditional data centers are like tens of megawatts, right? So you have many of them. You have them in and around like big metropolitan areas to serve those areas. Whereas like, I guess, yeah, some of the other big hyperscalers have built at hyperscale. But Bitcoin miners were among the first to really pioneer building just absolutely giant data center projects. I mean, I'm thinking about all the big Bitcoin miners. Some of them are absolutely massive. And we had, I mean, Helios was massive for Bitcoin mining. What, can I ask, needed to happen to transition from a Bitcoin mining data center to an AI training and inference data center?

5:35Alex Thorn:What's different? I remember when I visited, Helios was really cool for many reasons. One, because it was all liquid-cooled ASICs. Does that exist for this? Are these liquid cool GP? I don't know. What else had to change? It was a pretty dramatic change. I mean, outside of kind of the main frame of our data center. So you just kept the four walls. Yeah, the four walls are still there. The substation is still there. The transformers. What made our acquisition of Helios so valuable was it came with 800 megawatts of power approved plus all the transformers basically installed are on PO. So when we look at kind of phase one into phase two and phase three, we have a lot of the long lead infrastructure.

6:15which enabled us to build on this timeline and deliver for CoreWeave. Just to kind of give a sense of the scale, the Bitcoin mining side was probably sub a million per megawatt to build out a full Bitcoin mining data center. Now we're looking at 10 to 15 and growing millions per megawatt as infrastructure, as supply chains get tighter. So the scale of it has basically increased by multiple 10. The complexity of a lot of the tenant fit out, a lot of the internal infrastructure is far more complex than Bitcoin mining. Although high level, it was kind of like liquid immersion cooling that we were doing.

6:54Now we're doing direct liquid chip cooling. You know, it is completely different hardware in the actual. Sounds a little similar, but you're saying it's not really. The only real similarity is from the high voltage electrical infrastructure down, you know, just basically the power capacity and usable power capacity. and the infrastructure that comes with it, that's kind of the same. But then when you look at the actual medium and low voltage design, that's pretty much changed completely.

7:20Alex Thorn:Totally different user of the electricity. That's right. With its own needs. And so, and then phase two is what? Building more buildings? Building out that remaining 800? So phase two is a full greenfield build this time. You know, with phase one, we had the four walls as we were talking about. We had some electrical infrastructure build out. But this one is true. Like, you know, we're starting with the earthwork, civil work, site work for the actual project, building out the new frame, building out kind of the next phase of substation capacity for it. So it is our first true Greenfield build.

7:55But that being said, there isn't like that much incremental work to add on top of what we had to do for phase one. It was still just like basically a blank slate that we were starting with outside of a shell of a building.

8:05Alex Thorn:I liked to think that it was like not that different ASICs versus GPUs for AI. but I've been, you saying that it basically, other than the electricity stuff, was basically just the four walls of the building. I would say, I mean, the power density inside the data centers are similar. I mean, we're running the same 200 megawatts worth of total capacity. Into the building. Yeah, that's just the amount that the building can fit. Right. And when you layer on the cooling and everything. So, you know, there is that similarity, but when you look at the actual design, the redundancy components, there was no redundancy with Bitcoin mining.

8:39We could ramp up, ramp down, whatever we wanted to. Now we have to be online 100 % of the time. Right, right, right.

8:44Alex Thorn:So one of the other things that I know Galaxy announced, well, certainly since anyone from your team has been on the show, has been the approval by ERCOT for 800 more megawatts of electricity. What does that actually mean, right? That's a regulatory approval, right? It's not – and then explain a little bit about ERCOT's process for, I don't know, deciding who gets these approvals or why or why they're metering it and, you know, why we can't just stand up whatever we want. Like, I don't know a lot about that. Yeah, absolutely. So I think earlier this year, we got approval for an incremental 830 megawatts on top of the initial 800 megawatts that we had with the acquisition that's been leased out to CoreWeave.

9:24So this incremental 830 megawatts has not been leased yet. We're having active discussions on that capacity, but it's a super exciting time because we were able to get that approval prior to ERCOT also starting this new batching process as a result of basically the queue growing to like 430 gigawatts of capacity. You have speculators, fake projects, this and that.

9:46Alex Thorn:I see, buying up land and then asking for a queue. Yeah, flipping, you know, flipping land, basically throwing an interconnect study. So I think it is healthy in that it is real projects that are going to be sifted out of this. But the 1.6 gigawatts that we have approved came before this. So, you know, we're We're all set on that front. We can go out and have leasing discussions. We started to put in purchase orders for a lot of long-lead equipment, substation infrastructure, transformers, and that sort of stuff for this class. I remember seeing one of those transformers that was already there waiting to be built out years ago on a cement pallet.

10:19Alex Thorn:The thing is absolutely massive. It's huge. It's like, I don't know, like four or five people tall and wide, like a cube. It's huge. Yeah. And they take a long time to build, right? Like you have to get a couple years or something. Yeah, I'd say it's more so the delivery timelines now. Just because everyone wants to interconnect, you need these 345 kV high-voltage transformers to actually be able to pull from the grid. And if you have your private substation, that that's going to step down from high voltage to medium voltage down to the data center. This equipment is probably the most supply-constrained across the board.

10:55And for us, I think we've had the foresight to lock in a lot of these POs very early on, put the Galaxy's Bouncy Capital to work on basically ensuring that we have the timelines locked down from the minute that we get approval. So we're not then waiting on a long pull of like, okay, we got approval, but then - So it'll take a year to get the device. Then we need to transform. So we're trying to get ahead of the game on that front, ahead of the supply chains, because it's just going to continue to get constrained just with how much data center growth there continues to be.

11:24Alex Thorn:So, and then I want to ask about West Texas too, because I remember when I was driving to Helios, not only did I, from Lubbock, not only did I drive past maybe like 10 ,000 wind turbines. Yeah. There's a good wind there as well, apparently, which is also awesome. That's right. But also, like, there is the most giant, like, transmission lines I think I've ever seen in my life. Like, you know when you're driving down the highway and you see, like, the really big transmission lines that are moving electricity, like, from city to city as opposed to the little ones on your street? Yeah. These ones were like twice as big as the big ones that you normally see like in normal America, right sort of next to the site.

12:03Alex Thorn:What is that? Yeah. So, I mean, these are the high voltage transmission lines. And I think it's why we really like the Helios site as well. Like outside of our private substation, we are 100 yards from the Cottonwood substation, which is probably one of the most liquid points in the entire – Of electricity. Yeah, exactly. So there's a lot of power that's flowing in from kind of the renewables rich area in West Texas down to kind of the main load centers in Dallas and Austin. And we're at a point where we're directly adjacent to one of the most critical pieces of infrastructure in ERCOT. Right.

12:38So from a reliability perspective, it's something that when we have conversations, you know, that's a key point for a lot of our tenants is ensuring that we can get reliable power.

12:48Alex Thorn:Because you're not like down at the fingertips of the grid. You're like right there, like a major artery. Yeah, that's very cool. So, you know, West Texas, I think, and across the board, I mean, we've started to see the hyperscalers move to kind of more of these remote regions. I think Google has a few data centers out there. You know, there's the Abilene projects with Stargate and now Meta and then, sorry, Stargate and then Microsoft. And Meta has a few data centers out there. So people realize now the value that West Texas provides, which is what has been a superfluous amount of capacity. And it's easier to bring out the fiber, bring out the labor, find solutions for water rather than trying to build out power infrastructure in some of these more metropolitan areas.

13:32Alex Thorn:Super interesting. And then, like I said, I'd be remiss if I didn't mention that Galaxy announced, I think, just last week that it is now the stadium and title sponsor for the Texas Tech Red Raiders football, which is in Lubbock. A great football team that has a long history of playing well. But also, like, is this – I was just like the roots are growing deep here. You've got all this land. You've now got Tenant. You've got approvals. Like, we're big in West Texas now. Like, what was that about in your mind? I think the biggest thing for us is, you know, as we continue to grow out in the area, it is important for us to kind of maintain and be strong stewards within our community.

14:14And for us, you know, West Texas has treated us immensely well. And, you know, I think for us in being able to bring jobs, high paying jobs, you know, work with a local community on internships and all that, develop our labor force. I think it's just another step in the direction that, you know, this is kind of the Kickstarter for us in our data center growth trajectory. And we want to be an important part of the community. We want to give back to the community.

14:42Alex Thorn:It's very cool. It is a cool community. I really enjoyed Lubbock when I was there. And I got to go back. I think maybe for a Red Raiders football game. Yeah. I think it's definitely on the docket. They had big 12 champions last year. I know. I know. It's going to be exciting. I actually did go. We did go to a game when I was there three years ago, and it was awesome. Huge stadium, too. Like, just great big fan base. So that'll be fun. Let's pivot a little bit. Let's talk about sort of AI more generally because, like, I wrote a piece called The Last Model Problem, pretty like substantially criticizing the commerce department for their phone call, which they gave Anthropic to ban mythos or fable specifically from non-Americans and sort of saying like that surely isn't meant to be the process by which this occurs.

15:27Alex Thorn:Like there was no letter even published. Like they just like called them, I guess, is my understanding. Like where do you see the rise of these models being so powerful and effective, like clashing with or overlapping with government as one first part of the conversation. Obviously, that got lifted, and Fable 5 is now available to people. No, absolutely. And this is a topic that I feel like has come really to the forefront as a lot of the Chinese open source models have started to get better and better. And look, there is an AI arms race happening right now. It's the U.S. and Frontier Labs versus basically China and open source.

16:08I think it's extremely important for regulators to get this right because if there is, you know, regulation that basically hampers the ability to actually accelerate, put out new models, that's something that China is never going to abide by. And it's something that, you know, as we kind of compete on the next frontier models, it's important that there's continued innovation and there isn't something that's hampering that growth. Because the minute that we lose the lead, then, you know, you have the rest of the world that's utilizing basically infrastructure that's not American infrastructure.

16:42So I think it has compounding effects not only on the AI labs, but when we look at, you know, the chip side of things, where the data centers are being built out from the top down, it is important for us to have, you know, obviously there has to be the right guardrails in place. But, you know, if it's anything that's slowing down kind of the cadence of model development, I think that's going to be really, really tough for the U.S. to compete with China. And, you know, I think one last point, like when you look at how kind of the industry has evolved, you know, a few months back, people were saying, you know, open source is kind of 12 months behind, six months behind.

17:18Now, you know, the Kimi K3 model is like amongst the bleeding edge. Yeah. And, you know, there's still concerns or questions on whether they distill the models, whatever. Basically, they have a model that is competitive with some of our frontier models. And I think that that's just going to increase the cadence of new releases, ensuring that, you know, the American labs can maintain their moat, basically, and continue to utilize better and better models for their own internal development to kind of have this flywheel. So, you know, I think it's certainly a very important topic to ensure that, you know, the right safety guardrails are there.

17:56But if it's going to lead to six, 12-month review periods, we're just going to fall behind on that. Yeah, I think it's very difficult.

18:02Alex Thorn:It's very tricky. And a lot of people have hypothesized different outcomes. I love those essays, AI 2027 and AI 2040, which have different game theoretical paths that could occur depending on choices. And they, you know, I would say it seems pretty likely that the model development, maybe in China as well one day, but definitely not now, really will become subject to substantial government oversight. Not just because they get so smart, but also because they're so critical to economies. I mean, somebody was asking on X, I saw a tweet that was like, are there developers that aren't using coding tools, AI coding tools?

18:48Alex Thorn:Right. Do you think there's even one at this point? Like, why wouldn't you be? Yeah. It's crazy. And then do you think the open source, I mean, that doesn't affect like, I mean, like I'm using open source models at home, but they're, you know, quantized, right? As I was called, they're much smaller. They're smaller models. the big ones still need like giant data center infrastructure right so it's not about it affecting the ai capex it's about if anything i still think it continues to accelerate the capex because um where where where these open source models are coming into play is actually for broader enterprise adoption you can either pay i don't know 50 60 dollars per million tokens or whatever for, you know, Anthropic and OpenAI, or you pay 50 cents for your own instance of kind of the bleeding edge.

19:37Alex Thorn:So then you, rather than using like Anthropic or OpenAI's data center, you end up trying to get your own data center capacity directly. It completely diversifies the kind of model layer, which, you know, for the labs, there might be certain pricing pressure that comes with that, where they may have to focus more on kind of the application layer. but for the neoclouds, for the data centers, all of that demand still has to be serviced. And if you have cheaper and cheaper models coming out, they still have power footprints and the hyperscalers want to service this power on their clouds. Hyperscalers need data centers to service this demand.

20:15So it's all going back to Jevin's paradox, basically, where intelligence is just getting cheaper and cheaper.

20:21Alex Thorn:And that induces more and more demand. Exactly. Because like, right, you're making it possible for many more enterprises to use AI because they pay less overall. Exactly. That's exactly right. I mean, these are, I mean, Fable 5 is a token burner. I've used it a fair amount and you hit those limits. It's an expensive token maxing project. Yes, it is. Yes, it is good. It's quite good, but it is, I'm hitting that, I have at home the max plan, which is like the 5X of the regular pro plan and they're giving us all 50 % of our weekly usage can be Fable 5 and I hit that, it resets on Wednesdays, I usually hit it by like Friday morning.