Core Scientific’s 104 megawatt Bitcoin mining data center in Marble, North Carolina
Carey McKelvey
AUSTIN – For five years, bitcoin miner Scientific core has quietly diversified out of mining and into artificial intelligence, a market that will require tremendous amounts of power to handle the training of AI models and the massive workloads that follow.
The move is no longer a secret.
On Monday, Core Scientific announced a 12-year deal with cloud provider CoreWeave to provide infrastructure for use cases like machine learning. Core Scientific said the deal, which expands on an existing partnership between the two companies, will add more than $3.5 billion in revenue over the course of the contract.
CoreWeave, powered by Nvidia, rents out graphics processing units (GPUs), which are needed to train and run AI models. CoreWeave was valued at $19 billion in a funding round last month. Core Scientific will provide approximately 200 megawatts of infrastructure to CoreWeave’s operations.
Core Scientific, which emerged from bankruptcy in January, has been mining a mix of digital assets since 2017. The company began diversifying into other services in 2019.
“The best way to think about bitcoin mining facilities is that we’re basically energy shells for the data center industry,” Core Scientific CEO Adam Sullivan told CNBC.
Sullivan stepped into the role of CEO while the company was still in the throes of bankruptcy, which resulted from the 2022 bitcoin collapse. Since then, the former investment banker has paid off debts with angry lenders and further grown the company’s non-bitcoin business as it re-entered the public market.
Although Core is up more than 40% since its relaunch earlier this year, its market capitalization of about $865 million is significantly lower than its July 2021 valuation of $4.3 billion.
Demand for AI computing and infrastructure increased after OpenAI unveiled ChatGPT in November 2022, triggering a rush of investment in AI models and startups. Meanwhile, Core Scientific and other miners such as Bit Digital, Hive, Hut 8 and TeraWulf have been looking to bolster their revenue streams after the so-called bitcoin halving in April reduced the rewards paid to bitcoin miners by 50%.
Many of them have renovated their massive facilities to meet the needs of the market.
“Bitcoin miners, often stationed in secure and power-intensive data centers, also find these facilities ideal for AI operations,” said James Butterfill, head of research at digital asset firm CoinShares.
Butterfill said the overlap is leading to a competition for space between bitcoin mining and AI activities. While AI operations require up to 20 times the capital expenditure of bitcoin mining, they are more profitable, according to a report from CoinShares.
“The introduction of AI activities leads to increased depreciation and amortization, which can increase gross profit margins,” said Butterfill.
According to CoinShares, Bit Digital derives 27% of its revenue from AI. Hut 8 generates 6% of its 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 the first batch of 1,000 Nvidia GPUs and secured a customer deal with an enterprise-backed AI cloud platform as part of its expansion into new technologies that deliver higher returns.
“We finalized commercial agreements for our new AI vertical under a GPU-as-a-service model, including a customer agreement that provides for fixed infrastructure payments plus revenue sharing,” said Hut 8 CEO Asher Genoot.
Genoot added that the company expects to start generating revenue in the second half of the year at an annual rate of about $20 million.
Bit Digital had 251 servers actively generating revenue from its first AI contract as of late April, and the company said it earned about $4.1 million in operating revenue 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 deal with CoreWeave is expected to generate annual revenue of $290 million.
“While we aim to remain one of the largest and most productive bitcoin miners, we expect to have a diversified business model and more predictable cash flows,” Sullivan said.
The volatility of Bitcoin has made mining a challenging business.
Although bitcoin is currently up more than 150% in the past year to around $69,000, the 2022 bear market sent many miners into bankruptcy or forced them to shut down altogether.
Complicated movement in AI
The transition to AI is not as simple as reusing existing infrastructure and machines, because data center requirements for high-performance computing (HPC) are different, as are data network needs.
“Except for transformers, substations and some switchgear, almost all of the infrastructure miners currently have will need to be torn down and built from the ground up to accommodate HPC,” Needham analysts wrote in a May 30 report.
The devices used to mine bitcoins are called application-specific integrated circuits (ASICs). They are built specifically for crypto mining and cannot be used to do other things.
Needham estimates that HPC data centers run $8 million to $10 million per megawatt in capacity, excluding GPUs, while bitcoin mining sites typically run $300,000 to $800,000 per megawatt in capex, excluding including ASIC.
Core’s Sullivan says there are many synergies between the two businesses.
“One of the most exciting parts about the bitcoin mining business is that we have access to vast amounts of power across the United States with access to fiber lines,” he said.
Beyond the partnership with CoreWeave, Core Scientific has also announced that over the next three to four years, it is working to convert 500 megawatts of its bitcoin mining infrastructure across the country to HPC data centers.
Sullivan said the renovation is manageable because the company owns and controls all of its data center infrastructure.
“There are components that we have to buy to retrofit for HPC, but those are things that we can easily source,” he said.
In the next one to two years, Needham analysts estimate that major publicly traded bitcoin miners are expected to double their power capacity, including their mining and HPC business expansion plans.
Clean energy is a popular choice because it is the cheapest source of energy in many markets. Scale miners compete in a low-margin industry where their only variable cost is usually energy, so they are incentivized to migrate to the world’s cheapest energy sources. An industry report estimates that the bitcoin network is 54.5% powered by sustainable electricity.
The Electric Power Research Institute estimates that data centers could account for up to 9% of the nation’s total electricity consumption by 2030, up from about 4% in 2023. The use of nuclear power is seen by many as the answer. for fulfilling this request.
TeraWulf powers its mining sites with nuclear power and is looking to get into machine learning. So far, the firm has two megawatts of dedicated HPC capacity, though it has plans to transition its power infrastructure toward AI and HPC.
OpenAI CEO Sam Altman told CNBC last year that he’s a big believer in the core when it comes to serving the needs of AI workloads.
“I don’t see a way for us to get there without nuclear,” Altman said. “I mean, maybe we can get there with just solar and storage. But from my perspective, I feel like that’s the most likely and the best way to get there.”
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