Crypto Miner Core Scientific Inks $3.5 Billion Deal to Diversify Into AI

Core Scientific has announced a $3.5 billion, 12-year contract with the Nvidia-backed cloud service provider – CoreWeave.

This significant partnership marks a strategic shift for Core Scientific as it ventures beyond Bitcoin mining into high-performance computing (HPC) and machine learning. CoreWeave will also enhance Core Scientific’s existing infrastructure, making it apt for complex artificial intelligence (AI) applications.

Crypto Miners Diversify Into AI

This deal expands upon a pre-existing collaboration between the two firms. It aims to retrofit Core Scientific’s facilities into cutting-edge, application-specific data centers. These enhancements are crucial for advanced computing tasks that modern AI technologies demand.

Under the partnership’s financial terms, CoreWeave will handle all initial capital investments, including a significant $300 million allocated to infrastructure upgrades. These investments will be strategically recouped through hosting fees, providing financial relief and reducing risk exposure.

With estimated annual revenues of around $290 million from the contracts, Core Scientific anticipates a significant boost in earnings, enhancing shareholder value. Meanwhile, Core Scientific stock has been up by 40% year-to-date.

CEO Adam Sullivan highlighted the strategic foresight of this diversification.

“Our expanding relationship with CoreWeave creates a pathway for Core Scientific to diversify our business model and balance our portfolio between Bitcoin mining and alternative compute hosting, positioning us to maximize cash flow and minimize risk while maintaining our significant exposure to Bitcoin’s upside potential,” Core Scientific CEO Adam Sullivan said.

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Core Scientific Price Performance. Source: TradingView

The timing of this deal is pivotal, given Core Scientific’s recent emergence from bankruptcy prompted by the 2022 Bitcoin market collapse. Under Sullivan’s leadership, the company has navigated past financial challenges by restructuring debt and pivoting towards more sustainable business avenues.

Moreover, the agreement includes options for further expansion, allowing CoreWeave to increase its operational capacity at Core Scientific’s locations. These ongoing negotiations aim to secure additional contracts that would significantly boost Core Scientific’s capabilities.

The shift towards AI and HPC hosting is driven by the increasing demand for AI infrastructure, sparked by groundbreaking technologies such as OpenAI’s ChatGPT. This surge has sparked a flurry of investments across the sector, with many companies, including Core Scientific’s peers such as Bit Digital, Iris Energy, and Hut 8, diversifying their revenue streams beyond traditional Bitcoin mining.

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Q1 2024 HPC/AI Revenue of Bitcoin Miners. Source: Forbes

Industry experts affirm that AI operations require greater capital investment but also yield higher profits than Bitcoin mining. James Butterfill, Head of Research at CoinShares, noted the strategic advantage for Bitcoin miners.

“Bitcoin miners, often stationed in energy-secure and energy-intensive data centers, find these facilities ideal for AI operations as well,” Butterfill said.