Core Scientific’s 104 megawatt Bitcoin mining data center in Marble, North Carolina
Carey McKelvey
AUSTIN — For five years, bitcoin miner Core Scientific has quietly been diversifying out of mining and into artificial intelligence, a market that can require immense amounts of power to handle the training of AI models and the large workloads that follow.
The move is not any longer a secret.
On Monday, Core Scientific announced a 12-year cope with cloud provider CoreWeave to supply infrastructure to be used cases like machine learning. Core Scientific said the agreement, which expands upon an existing partnership between the 2 corporations, will add revenue of greater than $3.5 billion over the course of the contract.
CoreWeave, backed by Nvidia, rents out graphics processing units (GPUs), that are needed for training and running AI models. CoreWeave was valued at $19 billion in a funding round last month. Core Scientific will deliver about 200 megawatts of infrastructure to CoreWeave’s operations.
Core Scientific, which emerged from bankruptcy in January, has been mining a mixture of digital assets since 2017. The corporate began to diversify into other services in 2019.
“The perfect method to take into consideration bitcoin mining facilities is that we’re essentially power shells to the information center industry,” Core Scientific CEO Adam Sullivan told CNBC.
Sullivan jumped into the role of CEO while the corporate was still within the throes of bankruptcy, which resulted from the collapse of bitcoin in 2022. Since then, the previous investment banker has settled debts with offended lenders and further beefed up the corporate’s non-bitcoin business because it reentered the general public market.
Though Core is up greater than 40% since relisting earlier this yr, its market capitalization of around $865 million is significantly lower than its valuation of $4.3 billion in July 2021.
Demand for AI compute and infrastructure surged after OpenAI unveiled ChatGPT in Nov. 2022, setting off a rush of investment in AI models and startups. Meanwhile, Core Scientific and other miners like Bit Digital, Hive, Hut 8, and TeraWulf have been trying to bolster their revenue streams after the so-called bitcoin halving in April cut rewards paid out to bitcoin miners by 50%.
Many have been retrofitting their massive facilities to fulfill the needs of the market.
“Bitcoin miners, often stationed in energy-secure and energy-intensive data centers, find these facilities ideal for AI operations as well,” said James Butterfill, head of research at digital asset firm CoinShares.
Butterfill said the the overlap is resulting in a contest for rack space between bitcoin mining and AI activities. While AI operations require as much as 20 times the capital expenditure of bitcoin mining, they’re more profitable, in keeping with a report from CoinShares.
“The introduction of AI activities results in increased depreciation and amortization, which might enhance gross profit margins,” Butterfill said.
In response to CoinShares, Bit Digital derives 27% of its revenue from AI. Hut 8 generates 6% of sales from AI, and Hive, which has data centers in Canada and Sweden, gets 4% of its revenue from these services.
Hut 8 said in its first-quarter earnings report that it had purchased its first batch of 1,000 Nvidia GPUs and secured a customer agreement with a venture-backed AI cloud platform as a part of its expansion into latest technologies offering higher returns.
“We finalized industrial agreements for our latest AI vertical under a GPU-as-a-service model, including a customer agreement which provides for fixed infrastructure payments plus revenue sharing,” said Hut 8 CEO Asher Genoot.
Genoot added that the corporate expects to start generating revenue within the second half of the yr at an annual rate of about $20 million.
Bit Digital had 251 servers actively generating revenue from its first AI contract as of the top of April, and the corporate said it earned about $4.1 million of revenue from the operation that month.
Iris Energy expects to generate between $14 million and $17 million in annual revenue from its AI cloud services. Core Scientific’s expanded arrangement with CoreWeave is predicted to supply annual revenue of $290 million.
“While we intend to stay certainly one of the most important and most efficient bitcoin miners, we expect to have a diversified business model and more predictable money flows,” Sullivan said.
Bitcoin’s volatility has made mining a difficult business.
Though bitcoin is currently up greater than 150% prior to now yr to around $69,000, the bear market of 2022 sent many miners out of business or forced them to shutter altogether.
Complicated move to AI
Pivoting to AI is not so simple as repurposing existing infrastructure and machines, because high-performance computing (HPC) data center requirements are different, as are the needs of the information network.
“Besides transformers, substations, and a few switch gear nearly all infrastructure miners currently have would have to be bulldozed and built from the bottom as much as accommodate HPC,” Needham analysts wrote in a report on May 30.
The rigs used to mine bitcoin are called Application-Specific Integrated Circuits (ASICs). They’re built specifically for crypto mining and may’t be used to do other things.
Needham estimates that HPC data centers run at $8 million to $10 million per megawatt in capex, excluding GPUs, whereas bitcoin mining sites typically operate at $300,000 to $800,000 per megawatt in capex, not including ASICs.
Core’s Sullivan says there’s loads of synergy between the 2 businesses.
“One of the vital exciting parts concerning the bitcoin mining business is we now have access to large amounts of power across the US with access to fiber lines,” he said.
Beyond its partnership with CoreWeave, Core Scientific has also announced that over the following three to 4 years, it’s working to convert 500 megawatts of its bitcoin mining infrastructure across the country to HPC data centers.
Sullivan said the retrofit is manageable because the corporate owns and controls all of its data center infrastructure.
“There are components that we now have to buy to retrofit for HPC, however it is things that we will easily acquire,” he said.
In the following one to 2 years, Needham analysts estimate that enormous publicly traded bitcoin miners are expected to greater than double power capability, including each their mining and HPC business expansion plans.
Clean energy is a preferred selection since it’s the most affordable power source in lots of markets. Miners at scale compete in a low-margin industry, where their only variable cost is often energy, so that they’re incentivized to migrate to the world’s least expensive sources of power. An industry report estimates the bitcoin network is 54.5% powered by sustainable electricity.
The Electric Power Research Institute estimates that data centers could take as much as 9% of the country’s total electricity consumption by 2030, up from around 4% in 2023. Tapping into nuclear energy is seen by many as the reply to meeting that demand.
TeraWulf powers its mining sites with nuclear energy, and is trying to get into machine learning. Up to now, the firm has two megawatts dedicated to HPC capability, though it has plans to transition its energy infrastructure toward AI and HPC.
OpenAI CEO Sam Altman told CNBC last yr that he’s an enormous believer in nuclear on the subject of serving the needs of AI workloads.
“I do not see a way for us to get there without nuclear,” Altman said. “I mean, possibly we could get there just with solar and storage. But from my vantage point, I feel like that is the almost definitely and one of the best method to get there.”
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