Core Scientific, which was once deeply in debt due to Bitcoin mining, has seen a staggering 400% increase in the stock market this year.
However, if forced to choose between the two businesses, the company's executives did not hesitate to say they prefer to invest in data centers.
"What we really value is long-term stable cash flow and predictable returns," said COO Matt Brown in an interview. The company initially started as a Bitcoin miner. Despite Bitcoin's recent strong performance, it is highly volatile. In contrast, Core Scientific (CORZ.O) can achieve stable profits for years by hosting servers for companies providing cloud services for AI.
This year, whether betting on Bitcoin or data centers, you can't go wrong. Bitcoin has risen by 116%, and the demand for data centers is also very high as tech companies need them to support AI applications.
The two technologies may seem to have little in common, but they both rely on one thing: a reliable power supply. Core Scientific has a large amount of electricity, operating 9 warehouses connected to the grid across six states, with enough power supply to serve hundreds of thousands of households. Other Bitcoin miners have also transformed into data center hosting, but few have been as successful as Core Scientific.
At the beginning of the year, Core Scientific's business was not doing well. The company was under the shadow of bankruptcy protection at the start of 2024. It was heavily indebted after going public through a SPAC in 2022 and was on the brink of bankruptcy after the collapse of Bitcoin prices. However, after a bankruptcy restructuring on January 23, Core Scientific quickly turned the situation around, reducing its debt by $400 million.
At the beginning of the year, the company was focused on cryptocurrency mining but soon saw a surge in demand for power for AI data centers and adjusted its strategy accordingly.
In June, Core Scientific reached an agreement with Coreweave to lease data center space for AI cloud services. Subsequently, Coreweave agreed to lease 500 megawatts of space, and Core Scientific expects to generate $8.7 billion in revenue under this agreement over the next 12 years.
Coreweave is a private company and one of the fastest-growing companies driving the AI revolution. It was once a cryptocurrency miner but has transformed into a cloud service provider, focusing particularly on artificial intelligence. Coreweave has close ties with Nvidia, which invests in Coreweave and provides top chips. Coreweave is expected to be one of the first customers for Nvidia's upcoming Blackwell GPU.
Core Scientific's rapid success in this new field has even surprised those driving the transformation.
"Sometimes I have to pinch myself to see if I'm dreaming," Brown said.
However, Core Scientific's success has also set a high bar for further increases in stock prices. The company is expected to lose money this year, primarily due to changes in the value of stock warrants—an accounting adjustment that does not reflect the company's actual profitability. Analysts expect the company to become profitable in 2025, when more data center agreements begin to generate actual revenue. Analysts anticipate that earnings per share (EPS) will grow tenfold by 2027, with the stock price currently about 13 times the expected figure for 2027.
As tech companies build more powerful AI systems, opportunities for data centers should only grow. Of the 1,200 megawatts of total power capacity contracts signed with Core Scientific, about 800 megawatts will be used for data center computing agreements, and 400 megawatts for Bitcoin mining.
Brown stated that the company has good relationships with power suppliers and may not need to purchase more real estate to increase power supply. It is expected that by the end of the year, the company will obtain about 300 megawatts of power at existing sites.
Additionally, the company is looking for new sites, including some traditional data centers in "trouble" that have lost tenants. Core Scientific has found ways to quickly transform shabby data centers into high-tech places, providing resources such as liquid cooling equipment and higher power supplies.
In standard data centers, a server rack may require 6 or 7 kilowatts of power, while a high-performance data center may require up to 130 kilowatts per rack; Core Scientific is working to increase capacity to 400 kilowatts. The company likens the process of upgrading warehouses to converting an ordinary sedan into an F1 racing car.
Core Scientific's transformation from a dilapidated "old car" to a hot "racing car" has been a rollercoaster story. Next year, its fate will depend on the pace of the AI revolution.
Article reposted from: Jin Shi Data
