• Bitcoin mining company Core Scientific has announced plans to significantly expand its AI business.
• The deal with cloud provider CoreWeave is expected to add revenue of more than $3.5 billion over 12 years.
• Many bitcoin mining companies have been modernizing existing facilities to serve AI customers as crypto mining revenue plummets.

Core Scientific’s 104-megawatt Bitcoin Mining Data Center in Marble, North Carolina

Carey McKelvey

AUSTIN, Texas – For five years, Bitcoin miner Scientific Center has been quietly diversifying from mining into artificial intelligence, a market that will require immense amounts of energy to handle the training of AI models and the enormous workloads that follow.

The change is no longer a secret.

On Monday night, Core Scientific announced a 12-year agreement with cloud provider CoreWeave to provide infrastructure for use cases like machine learning. Core Scientific said the deal, which expands an existing partnership between the two companies, will add revenue of more than $3.5 billion over the life of the contract. Core Scientific shares jumped about 30% on Tuesday morning.

CoreWeave, supported by Nvidia, rents graphics processing units (GPUs), needed to train and run AI models. CoreWeave has been rated at US$19 billion in a funding round last month. Core Scientific will provide approximately 200 megawatts of infrastructure for CoreWeave’s operations.

Core Scientific, which emerged from bankruptcy in January, has been exploring 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 are essentially energy shields for the data center industry,” Adam Sullivan, CEO of Core Scientific, told CNBC.

Sullivan took on the role of CEO while the company was still on the brink of bankruptcy, which resulted from the 2022 bitcoin collapse. Since then, the former investment banker has settled debts with angry creditors and further bolstered the company’s non-bitcoin businesses. how it re-entered the public market.

Although Core has risen more than 40% since relisting earlier this year, its market capitalization of around $865 million is significantly lower than its $4.3 billion valuation as of July 2021.

Demand for AI computing and infrastructure surged after OpenAI unveiled ChatGPT in November 2022, triggering a wave 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 rewards paid to bitcoin miners by 50%.

Many have modernized their massive facilities to meet market needs.

“Bitcoin miners, often stationed in energy-secure and energy-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 competition for rack space between bitcoin mining and AI activities. Although AI operations require up to 20 times the capital expenditure of bitcoin mining, they are more profitable, according to a CoinShares report.

“The introduction of AI activities leads to increased depreciation and amortization, which can increase gross profit margins,” Butterfill said.

According to CoinShares, Bit Digital derives 27% of its revenue from AI. Hut 8 generates 6% of AI sales, and Hive, which has data centers in Canada and Sweden, derives 4% of its revenue from these services.

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Hut 8 said in its first quarter earnings report which purchased its first batch of 1,000 Nvidia GPUs and secured a customer agreement with a venture capital-backed AI cloud platform as part of its expansion into new technologies that offer higher returns.

“We have 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 Asher Genoot, CEO of Hut 8.

Genoot added that the company expects to begin generating revenue in the second half of the year at an annual rate of about $20 million.

Bit Digital It had 251 servers actively generating revenue from its first AI contract in late April, and the company said it made about $4.1 million in 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 agreement with CoreWeave is expected to produce annual revenue of $290 million.

“While we intend to remain one of the largest and most productive bitcoin miners, we hope to have a diversified business model and more predictable cash flows,” Sullivan said.

Bitcoin’s volatility has made mining a challenging business.

While bitcoin is currently up more than 150% in the past year to around $69,000, the 2022 bear market has driven many miners out of business or forced them to close completely.

Migrating to AI is not as simple as repurposing existing infrastructure and machines because high-performance computing (HPC) data center requirements are different, as are data network needs.

“In addition to transformers, substations and some switching equipment, almost all of the infrastructure that mining companies currently have would need to be demolished and built from scratch to accommodate HPC,” Needham analysts wrote in a May 30 report.

The platforms used to mine bitcoin are called application-specific integrated circuits (ASICs). They are specifically built for crypto mining and cannot be used to do other things.

Needham estimates that HPC data centers run between $8 million and $10 million per megawatt in capex, excluding GPUs, while bitcoin mining sites typically run between $300,000 and $800,000 per megawatt in capex, excluding include ASICs.

Core’s Sullivan says there is a lot of synergy between the two businesses.

“One of the most interesting parts of the bitcoin mining business is that we have access to large amounts of energy in the United States with access to fiber lines,” he said.

In addition to its partnership with CoreWeave, Core Scientific also announced that over the next three to four years, it will be working to convert 500 megawatts of its bitcoin mining infrastructure across the country into HPC data centers.

Sullivan said the modernization is manageable because the company owns and controls all of its data center infrastructure.

“There are components we need to buy to modernize the HPC, but they are things we can easily acquire,” he said.

Over the next one to two years, Needham analysts estimate that large, publicly traded bitcoin miners are expected to more than double power capacity, including their mining and HPC business expansion plans.

Clean energy is a popular choice because it is the cheapest energy source in many markets. Large-scale miners compete in a low-margin industry where their only variable cost is typically energy, so they are incentivized to switch to the cheapest energy sources in the world. One industry report estimates that 54.5% of the Bitcoin network is powered by sustainable electricity.

O Estimates from the Electric Power Research Institute that data centers could absorb up to 9% of the country’s total electricity consumption by 2030, compared to around 4% in 2023. The use of nuclear energy is seen by many as the answer to meeting this demand.

TeraWulf powers its mining sites with nuclear energy and is looking to get into machine learning. So far, the company has two megawatts dedicated to HPC capacity, although it has plans to transition its energy infrastructure to AI and HPC.

OpenAI CEO Sam Altman told CNBC last year that he is a big believer in nuclear power when it comes to meeting the needs of AI workloads.

“I don’t see a way we can get there without nuclear power,” Altman said. “I mean, maybe we could get there with just solar and storage. But from my perspective, I feel like this is the most likely and best way to get there.”

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