Core Scientific Expands Horizons With $3.5B AI Deal and Potential Buyout

Core Scientific Expands Horizons With $3.5B AI Deal and Potential Buyout

By: Eva Baxter

Core Scientific, a leading bitcoin mining company, has entered into a significant 12-year agreement with AI hyperscaler CoreWeave, backed by Nvidia, to provide 200 megawatts (MW) of infrastructure for high-performance computing (HPC) services. This groundbreaking deal, valued at over $3.5 billion in total cumulative revenue during the initial contract term, marks a strategic diversification for Core Scientific beyond its traditional bitcoin mining operations. The partnership aims to generate an average annual revenue of around $290 million.

This agreement represents a pivotal shift for Core Scientific, which will modify multiple existing sites to host CoreWeave’s NVIDIA GPUs. Site modifications are set to begin in the second half of 2024, with operations expected to launch in the first half of 2025. CoreWeave will fund all capital investments required for these modifications, estimated at $300 million, which will be credited against hosting payments until fully repaid. This move positions Core Scientific to balance its portfolio between Bitcoin mining and alternative compute hosting, thereby maximizing cash flow and minimizing risks while maintaining significant exposure to Bitcoin's potential upside.

According to Adam Sullivan, CEO of Core Scientific, the demand for high-power sites continues to outpace supply, and the company's ability to deliver power more quickly than greenfield data center projects positions it to meet customer needs effectively. The agreement also includes options for CoreWeave to expand its hosting footprint with Core Scientific at additional sites over the next 60 to 90 days. This expansion is part of Core Scientific's broader strategy to capitalize on its extensive high-power digital infrastructure portfolio, which includes 1.2 gigawatts of contracted power, with nearly 500 MW allocated for HPC workloads.

This strategic partnership builds upon a history of successful collaboration between Core Scientific and CoreWeave dating back to 2019. Earlier this year, Core Scientific delivered 16 MW of HPC hosting capacity to CoreWeave ahead of schedule at its new Austin data center. The partnership is expected to enhance Core Scientific's earnings power and drive shareholder value by increasing exposure to contracted, dollar-denominated revenue streams.

Additionally, the announcement comes nearly five months after Core Scientific received court approval to exit bankruptcy, a move necessitated by financial challenges stemming from the decline in crypto prices and rising energy costs. Under Sullivan's leadership, the company has restructured its debt and pivoted towards more sustainable business avenues, including this strategic shift into AI and HPC hosting. This diversification aligns with broader industry trends, as other crypto miners like Bit Digital, Iris Energy, and Hut 8 also explore AI infrastructure to boost profitability. The increasing demand for AI operations, driven by advancements such as OpenAI's ChatGPT, emphasizes the potential for higher returns compared to traditional Bitcoin mining alone.

Meanwhile, CoreWeave has reportedly made an offer to buy Core Scientific for $5.75 per share, valuing the company at over $1 billion. This buyout offer highlights the significant value and potential seen in Core Scientific's diversified approach and extensive infrastructure. As Core Scientific continues to expand its HPC hosting capabilities, it aims to deliver significant, resilient, and sustainable value for its shareholders, leveraging its extensive infrastructure and strategic partnerships to navigate the evolving digital landscape.

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