Core Scientific, which was once deep in debt due to Bitcoin mining, has seen a staggering 400% surge in the stock market this year.
However, if forced to choose between the two businesses, the company's executives have no hesitation in stating that they prefer to invest in data centers.
"What we really value is long-term stable cash flow and predictable returns," said Chief Operating Officer Matt Brown in an interview. The company initially started as a Bitcoin miner. Although Bitcoin has performed well recently, it is highly volatile. In contrast, Core Scientific (CORZ.O) can generate stable profits for years by hosting servers for companies that provide cloud services for AI.
This year, whether betting on Bitcoin or data centers, it won't go wrong. Bitcoin has risen 116%, and demand for data centers is also very high as tech companies need them to support AI applications.
These two technologies may seem to have little in common, but they both rely on the same thing: a reliable power supply. Core Scientific has a large amount of power, operating nine warehouses connected to the grid across six states, with enough power to supply hundreds of thousands of homes. Other Bitcoin miners are also similarly transforming into data center hosting, but few have been as successful as Core Scientific.
Core Scientific's business was not doing very well at the beginning of the year. The company was under the shadow of bankruptcy protection at the start of 2024. After going public via SPAC in 2022, it became heavily indebted and was on the brink of bankruptcy due to the collapse in Bitcoin prices. However, after the bankruptcy restructuring on January 23, Core Scientific quickly turned the situation around, reducing its debt by $400 million.
The company focused on cryptocurrency mining at the beginning of the year but quickly saw a surge in demand for power in 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 earn $8.7 billion under this agreement over 12 years.
Coreweave is a private company and one of the fastest-growing companies driving the AI revolution. It was originally a cryptocurrency miner but has transformed into a company providing cloud services, with a particular focus on artificial intelligence. Coreweave has a close relationship with NVIDIA, which invests in Coreweave and provides top chips. Coreweave is expected to be one of the first customers of NVIDIA's upcoming Blackwell GPU.
Core Scientific's rapid success in this new field has even surprised those driving this transformation.
"Sometimes I have to pinch myself to see if I'm dreaming," Brown said.
However, Core Scientific's success also sets a high bar for further increases in stock price. The company is expected to incur losses 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 start making a profit in 2025, when more data center agreements start generating real revenue. Analysts predict that earnings per share (EPS) will grow tenfold by 2027. The stock price is currently about 13 times the expected earnings for 2027.
As tech companies build more powerful AI systems, opportunities in data centers should only grow. Of the 1,200 megawatts of total power capacity contracts signed by Core Scientific, about 800 megawatts will be for data center computing agreements, and 400 megawatts will be for Bitcoin mining.
Brown stated that the company has a good relationship with power suppliers and may be able to increase power supply without purchasing more real estate. By the end of the year, the company is expected to obtain about 300 megawatts of power at existing sites.
Additionally, the company is looking for new locations, including some traditional data centers that are in 'distress' and have lost their tenants. Core Scientific has found ways to quickly transform rudimentary data centers into high-tech facilities, providing resources such as liquid cooling equipment and higher power supply.
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 transforming an ordinary sedan into an F1 race car.
The story of Core Scientific's transformation from a dilapidated 'old car' to a hot 'race car' has had its ups and downs. Next year, its fate will depend on the pace of the AI revolution.
