Author: David Pan, Bloomberg; Translated by: Deng Tong, Golden Finance

Matt Brown thought he must have been one of the most popular attendees at a technology conference hosted by Nvidia Corp. this spring.

From employees at the chipmaking giant to those representing Silicon Valley giants like Google and Amazon to lesser-known artificial intelligence startups, it seems everyone wants to ask the 46-year-old executive at crypto mining firm Core Scientific Inc. whether his company’s data centers have extra capacity.

“Just getting cold calls or text messages from people in the industry who are looking for capacity because they’re finding out there’s just no capacity out there," he said in an interview last week. "Everybody is scrambling to figure out where they can find capacity for the next 12 months, and it’s getting more and more difficult.”

The AI ​​boom has led to an unprecedented shortage of data center space and the graphics processing unit chips used by AI, as well as a quick way to get enough electricity to power it all. New facilities being built are filling up quickly: About 83% of data center capacity under construction has been pre-leased, according to a March report from commercial real estate firm CBRE Group, with AI companies and cloud service providers driving demand.

The search for any available data center space has led many in the AI ​​field to turn to a range of crypto mining companies that already have the necessary resources and are looking for more profitable uses. This wave of demand was evident this week when Core Scientific announced a partnership with AI startup CoreWeave to generate about $3.5 billion in revenue over 12 years. But the news was quickly overshadowed by a report from Bloomberg that CoreWeave had offered to buy Core Scientific outright for about $1 billion.

“We think the opportunity in AI today is that we can convert existing infrastructure to colocation customers who want to install very large GPU arrays for their customers, who ultimately are AI customers,” Adam Sullivan, Core Scientific’s chief executive, said in an interview before the CoreWeave acquisition news broke. He declined to comment on Tuesday’s acquisition reports.

The cryptocurrency miner has identified about 500 megawatts of data center capacity that could be converted to power AI, which Sullivan said could be “the largest dedicated AI GPU installation in the world.” To put that in perspective: It’s enough to power hundreds of thousands of homes for a year.

It’s no surprise, then, that CoreWeave is interested in buying the Austin, Texas-based company outright.The stock market’s reaction — including a 22% jump in miner TeraWulf Inc. shares on Tuesday — suggests investors are betting on more good news for the industry.

A key challenge in building a data center is providing the energy needed to run it. This is a complex process that usually involves building substations that allow the data center to draw power from the grid, and the construction of these facilities usually takes at least several years to complete.

Morgan Stanley estimates that data center developers would be willing to pay a 101% premium on electricity prices if they could get power two years earlier than competitors, assuming a GPU has an economic life of six years. Even assuming a chip has an economic life of 10 years, the analysts estimate the premium is 61%.

Data Center Transformation

One way to get a head start is to simply convert existing data centers into mining centers, an energy-intensive process in which specialized computers solve mathematical puzzles to verify encrypted transactions on a blockchain for compensation in the form of bitcoin or other crypto tokens. An April update to the bitcoin blockchain’s software cut the rewards paid to miners in half, making the proposition especially attractive now.

The Morgan Stanley report said that a data center that can be quickly converted is worth far more than its value as a mining facility. The company's analysts found more than 7 gigawatts of sites that can be converted among the top 21 listed crypto mining companies, which together only contribute about a quarter of the computing power needed for Bitcoin mining.

While some crypto miners trying to ride the AI ​​craze are looking for more convertible data centers and readily available electricity to rent to AI companies, some are taking a more direct approach, buying specialized hardware and selling computing power directly to AI customers. Northern Data AG, Bit Digital Inc., Iris Energy, Hive Digital Technologies Ltd. and Hut 8 Corp. have bought hundreds of millions of dollars worth of Nvidia chips, which have been in short supply because so-called data center hyperscalers such as Google and Amazon.com bought up much of the inventory.

These companies previously ran GPU-based mining operations alongside bitcoin mining, which uses a different type of technology. They tend to specialize in running advanced data centers suitable for high-performance computing, and often have existing relationships with Nvidia or chip wholesalers because they were already big buyers of GPUs during previous cryptocurrency bull runs.

Nvidia graphics card

“Maintaining those relationships and working well with those partners is just as important as working well with Nvidia,” said Rosanne Kincaid-Smith, group COO at crypto miner Northern Data, which has a large fleet of GPUs previously used for ethereum mining.

Frankfurt-based Northern Data is running one of the world’s largest AI clusters. Backed by Tether Holdings, the issuer of the Tether stablecoin and one of the most profitable crypto companies, Northern Data has purchased more than $800 million worth of Nvidia equipment, including the H100 chips that are currently in high demand for building AI applications. About 70% of the German crypto miner’s operations, including the H100’s predecessor, the A100 chips, were used to mine the cryptocurrency Ethereum until the token’s blockchain underwent a major software update that rendered the chips unusable for that purpose. The miner will deploy 20,000 H100s by the end of the summer, making it a major provider of computing power to European AI companies.

CoreWeave itself is a cryptocurrency mining company turned AI upstart, a success story Northern Data wants to emulate. New Jersey-based CoreWeave has raised billions of dollars in recent funding rounds, valuing it at $19 billion, and is considering an initial public offering. Northern Data has also been considering an IPO for its cloud computing unit Taiga as it unveiled a funding package to buy more chips and boost its generative AI offerings.

“They’re also about six months ahead of us, so I’d love to follow this up in six to nine months and do another comparison,” Kincaid-Smith said.

It all adds up to an unexpectedly exciting time for the data center business, with this once-dormant technology spreading to corners of the world and now attracting the attention of major players from Silicon Valley to Wall Street.

“I’ve been in this digital infrastructure or data center business for more than 20 years," said Brown, the Core Scientific executive. "I’ve never seen growth rates like this.”