Core Scientific Pivots to AI with $3.5B Partnership

Core Scientific, one of the largest Bitcoin mining companies in the United States, is making a significant shift towards artificial intelligence (AI) infrastructure amid the ongoing challenges in the cryptocurrency market. On June 3, the company announced a monumental $3.5 billion agreement with AI cloud provider CoreWeave. 

Significant Investment in AI Infrastructure

This deal involves Core Scientific providing an additional 200 megawatts (MW) of infrastructure to support CoreWeave’s high-performance computing (HPC) operations. The collaboration is expected to generate substantial revenue, with projections indicating an average annual income of approximately $290 million over the initial 12-year term.

This agreement represents a significant portion of Core Scientific’s resources, accounting for about 18% of its total operational infrastructure. As of April 2024, Core Scientific had 745 MW of operational infrastructure and an additional 372 MW of partially built infrastructure across its two data centers in Texas. The company’s expanding relationship with CoreWeave is part of a broader strategy to diversify its business model and stabilize its revenue streams in the face of a volatile Bitcoin market.

Core Scientific’s partnership with CoreWeave is not new. In March 2024, the companies entered into a multi-year contract wherein Core Scientific agreed to provide up to 16 MW of data center infrastructure to support CoreWeave’s AI and HPC operations. This ongoing collaboration underscores the strategic importance of AI and cloud computing in Core Scientific’s future plans.

CoreWeave, founded in 2017 and originally known as Atlantic Crypto, has rapidly risen in the tech industry despite its founders—Michael Intrator, Brian Venturo, and Brannin McBee—lacking prior experience in the cloud sector. Their backgrounds in trading energy futures did not hinder the company’s growth. In May 2024, CoreWeave secured a $7.5 billion debt facility from major investors such as Blackstone, Magnetar, and Coatue, which valued the company at $19 billion, as reported by The Wall Street Journal.

Adapting to the Changing Bitcoin Landscape

The timing of Core Scientific’s shift towards AI infrastructure coincides with the fourth Bitcoin halving event on April 20, 2024, which saw Bitcoin miner rewards slashed from 6.25 BTC per block to 3.125 BTC. This reduction in rewards, combined with the lack of a significant price increase in Bitcoin, has put pressure on mining firms to find alternative sources of revenue.

CEO Adam Sullivan emphasized that the partnership with CoreWeave provides a pathway for Core Scientific to balance its portfolio between Bitcoin mining and alternative compute hosting. This strategy aims to maximize cash flow and minimize risk while maintaining significant exposure to Bitcoin’s potential upside.

The news of the CoreWeave deal comes on the heels of Core Scientific emerging from a 13-month bankruptcy restructuring process. In January 2024, the company received court approval to relist its shares on Nasdaq under the symbol “CORZ,” marking the end of a challenging period. The restructuring plan was confirmed by the bankruptcy court in the Southern District of Texas, and Core Scientific anticipated being relisted on Nasdaq shortly after the approval.

Core Scientific’s financial difficulties were exacerbated by a combination of factors, including a prolonged bear market, rising energy prices, increased mining difficulty, and bad debt resulting from loans to the collapsed crypto firm Celsius. These challenges led to the company’s bankruptcy filing in December 2022 and subsequent delisting from the Nasdaq Global Select Market. However, a substantial increase in Bitcoin prices and hash rates since the filing has facilitated the company’s financial recovery and restructuring. 

Core Scientific Positions Itself for the Future

Throughout 2023, Core Scientific remained a significant player in the crypto mining industry, producing over 13,700 self-mined Bitcoin and 5,500 BTC from co-located miners. The company’s ability to navigate through financial turmoil and strategic pivot towards AI and HPC infrastructure highlights its resilience and adaptability in a rapidly evolving market.

Core Scientific’s $3.5 billion deal with CoreWeave signifies a pivotal shift in its business strategy, emphasizing diversification and risk management amid the fluctuating Bitcoin market. By integrating AI and HPC operations, Core Scientific is positioning itself for sustained growth and stability, ensuring it remains a formidable force in both the cryptocurrency and high-performance computing sectors.