OWL: AI Data Center Expansion Will Drive Long Term Upside Potential

The analyst price target for Blue Owl Capital has been trimmed to approximately $20.82 from about $21.40 as analysts factor in a slightly higher discount rate, modestly softer revenue growth assumptions, and mixed but fundamentally resilient takeaways from recent Q3 updates across the Street.

Analyst Commentary

Analysts are digesting Blue Owl Capital's Q3 results with a mix of optimism on long term growth and caution around near term execution and sentiment. The recent shifts in price targets reflect adjustments to modeled fundraising trajectories, earnings power, and perceived risk, rather than a wholesale change in the underlying thesis.

Bullish Takeaways

• Bullish analysts highlight that core fundamentals remain intact, pointing to ongoing growth in key franchises and wealth channel strategies that support a premium valuation multiple over the medium term.
• Despite near term volatility, some see the pullback after Q3 as an opportunity, arguing that long term fee related earnings growth and scalable platforms justify price targets that imply meaningful upside from current levels.
• Expectations for a decent, if slower, fundraising quarter and continued inflows into wealth products underpin confidence in resilient organic growth, supporting an outlook for steady AUM expansion and operating leverage.
• Supportive ratings, even alongside modest target cuts, suggest that the Street still views Blue Owl as a structural share gainer in alternative asset management, with execution on fundraising and product innovation key to re rating potential.

Bearish Takeaways

• Bearish analysts note that successive price target reductions, including the move to $20 at JPMorgan, indicate a more cautious stance on near term revenue growth, fee rate durability, and capital formation momentum.
• The stock's post earnings decline and sensitivity to external headlines highlight elevated sentiment risk, prompting some to build in a higher discount rate and more conservative multiple on forward earnings.
• Expectations for quarter over quarter declines in fundraising, even if from strong levels, raise questions about the pace of future AUM growth and the timing of operating margin expansion.
• Removal from select high conviction lists signals that, while the long term story is still respected, the risk reward profile is viewed as less asymmetric in the near term, putting more pressure on delivery against guidance and capital deployment targets.

What's in the News

• Blue Owl is reconsidering a previously scrapped plan to merge two private credit funds, but may only revive the deal if the larger fund's share price improves, following investor backlash to the terminated merger (Reuters).
• The firm recently called off its proposed merger of Blue Owl Capital Corporation II into Blue Owl Capital Corporation after investor concerns over restricted redemptions triggered a share price drop and broader questions about private credit liquidity (CNBC).
• Blue Owl committed roughly $3 billion to a New Mexico data center tied to OpenAI's Stargate project, significantly increasing its exposure to AI driven digital infrastructure (The Information).
• Funds managed by Blue Owl and Meta formed the Hyperion joint venture, a roughly $27 billion data center campus where Blue Owl holds an 80 percent stake, supported by a large debt financing to institutional bond investors (The Wall Street Journal; company filings).
• Blue Owl's Stack Infrastructure unit has a major data center project in Santa Clara that remains unoccupied as it awaits full energization, highlighting infrastructure and power supply bottlenecks in key AI hubs (Bloomberg).

Valuation Changes

• Fair Value: Trimmed slightly to approximately $20.82 from about $21.40. This reflects modestly higher perceived risk and softer growth assumptions.
• Discount Rate: Edged up marginally to around 8.51 percent from roughly 8.49 percent. This implies a slightly higher required return for investors.
• Revenue Growth: Reduced slightly to about 14.32 percent from roughly 14.41 percent. This signals a minor downgrade in medium term top line expectations.
• Net Profit Margin: Nudged higher to approximately 44.89 percent from about 44.80 percent. This indicates a small improvement in projected profitability.
• Future P/E: Compressed modestly to roughly 11.76x from about 12.07x. This suggests a slightly lower valuation multiple on forward earnings.