Summary Core Scientific's pivot from bitcoin mining to AI infrastructure, securing $10.2 billion in long-term contracts, offers a stable revenue stream and significant growth potential. The recent stock price decline due to speculative concerns presents a compelling investment opportunity, with a conservative valuation indicating a 64% upside. CoreWeave's $12 billion contract with OpenAI reaffirms strong demand for AI infrastructure, mitigating fears over Microsoft's commitment and reinforcing CORZ's business model. Insider purchases at $8 per share and ongoing HPC contract announcements validate confidence in CORZ’s future prospects amidst AI-driven compute demand growth. Investment Thesis Core Scientific's (CORZ) transformation from a struggling bitcoin miner to a key AI-Infrastructure marks one of the most significant strategic pivots in the industry. By leveraging its existing power capacity and data center infrastructure, CORZ has positioned itself as a leading provider of high-performance computing (HPC) hosting, securing 10.2 billion in long-term revenue contracts with CoreWeave (CRWV). This shift offers a far more stable and predictable revenue stream than bitcoin mining, which remains highly volatile due to price fluctuations, energy costs, and other mining dynamics like hash rate which are very difficult to forecast. The recent decline in CORZ’s stock price, driven by markets concern over compute demand following DeepSeek’s (DEEPSEEK) and speculative concerns around CoreWeave’s relationship with Microsoft (MSFT), has created a compelling investment opportunity. While execution risk remains in the transition to AI infrastructure, the long term contracted nature of CORZ’s HPC deals mitigate much of this uncertainty. Our conservative valuation indicates a 64% upside, CORZ presents a unique opportunity to capitalize on the rapid expansion of AI driven compute demand. Investors should view the current stock weakness as a chance to build a position ahead of further execution milestones, leasing announcements, and markets realization of the current issues as purely speculative. HPC Business Overview Core Scientific, originally a pure bitcoin miner, was struggling with bankruptcy in late 2022 but managed to save itself and reemerge with a complex capital structure. With the increasing power and operational costs, coupled with the volatile nature of the bitcoin prices, and the impact of halving event, bitcoin miners became less attractive to investors. It was at this critical juncture, CORZ pivoted towards the hosting business, announcing the first small 16mw hosting contract with CoreWeave on March 6 th , 2024. This marked a fundamental shift in strategy, and CORZ embarked on a journey which would see them lease 590MW to CoreWeave for HPC hosting under twelve year agreements. CoreWeave’s contracts provide long-term revenue visibility. CoreWeave, originally a crypto miner, has transitioned into a GPU-as-a-service company. Being an AI hyperscaler, CoreWeave is providing computation power to major companies like Microsoft. In fact, 62% of the CoreWeave's revenue comes from Microsoft. CoreWeave also leases some of the capacity from companies like CORZ. An interesting fact at this point is CoreWeave’s previous attempt to acquire core scientific at a 1b valuation, 5.75 per share, which was rejected that we now see was for good reasons. CORZ has a capacity of 1,300MW, of which they are planning to dedicate 900MW to HPC hosting while using the remaining capacity for bitcoin mining. To date, CORZ has announced six different HPC contracts with CoreWeave, securing $10.2b in revenues over a period of 12 years at an EBITDA margin of 75-80%. The deal dynamics suggest revenues of $1.3-$1.5 million per megawatt annually. The capital expenditure (CapEx) required to transform bitcoin mining units into HPC data centers is around $1.5 million per megawatt. This CapEx is financed by CoreWeave and repaid through revenue sharing agreements, capped at 50% of revenues per year. However, for the most recent 70MW contracts, CoreWeave is not financing the CapEx, instead CORZ issued convertible notes at 0% interest rates. Each of these six contracts has a different completion target time for becoming operational. CORZ already has a small HPC hosting revenue from its first announced contract of 16mw, which was completed before the deadline. The revenue from the other contracted deals of 574mw is expected to start flowing by the end of this year and fully ramp up by the second half of 2027. In the last earnings call, Management announced that the conversion will be completed before the initially proposed deadlines. The remaining 310MW is yet to be contracted, but the management is targeting full lease executions and operational deployment by late 2028. Why does this Investment opportunity exist? Core Scientific’s stock rallied significantly as is continued to announce new HPC contracts, at one point gaining 386% from the date of it first HPC deal announcement. However, two major events resulted in a 57% decline in CORZ’s stock price. First, the announcement of DeepSeek - a new AI framework claiming significantly lower development cost and computation needs, casting doubts on the demand for AI compute capacity. This created a ripple effect, impacting AI hyperscalers like CoreWeave and big tech firms that had invested billions into AI infrastructure. However, industry experts largely refuted DeepSeek’s claims. CORZ further demonstrated ongoing demand by announcing a new CoreWeave contract in its latest earnings report. While some skeptics suggested this contract might have been signed before DeepSeek’s announcement, those concerns were laid to rest when CoreWeave recently signed a $12 billion contract with OpenAI, reaffirming strong demand for High-Performance data centers. Secondly, the Financial Times reported that Microsoft had scaled back a certain commitment with CoreWeave due to delivery issues. Given that CoreWeave disclosed in its S-1 filing that 62% of its revenue comes from Microsoft, this raised fears that if Microsoft pulled back, it could impact CoreWeave’s ability to fund its contracts with CORZ leading to a cut in commitment with CORZ. This news triggered a significant sell-off in CORZ stock. However, CoreWeave swiftly denied these claims, stating “We pride ourselves in our client partnerships and there have been no contract cancellations or walking away from commitments. Any claim to the contrary is false and misleading, CoreWeave consistently delivers high-performance AI infrastructure at scale, and that’s earned us the trust of the world’s leading AI labs and enterprises” While the Microsoft issue caused panic, it was alleviated when CoreWeave secured a $12 billion, five-year contract with OpenAI. Sam Altman himself labelled this deal as an “important addition”, reducing CoreWeave’s reliance on Microsoft to some extent and reinforcing its operational excellence. Additionally, Microsoft and CoreWeave have a 45-day contract cancellation window, meaning any major contract termination would have been reported in CoreWeave’s S-1 filing as it was recently filed. Additionally, analyst at Cantor Fitzgerald have also dismissed the Financial Times claims as “unlikely”. Although Microsoft has not publicly commented on the issue, it is unlikely that such a major shift would occur without prior discussions with CoreWeave. In corporate settings, contract concerns are typically addressed between parties before any drastic action is taken. Even if Microsoft adjusts certain commitments, it will still source a significant amount of capacity from CoreWeave, indicating a strong relationship. If Microsoft were truly scaling back, CoreWeave would not have outright refuted the claims. Valuation Min ing Business The April 19 bitcoin halving reduced mining rewards in half from 6.25 btc to 3.125 BTC per block, increasing profitability challenges for bitcoin miners. CORZ continues to mine bitcoin but with a diminishing role. In February, it mined 215 BTC, averaging 7.7 BTC per day at an assumed average cost of $51,035 per BTC based on Q4 of last year, comprising $37,661 in power costs and $13,374 in operational expenses. This represents a substantial increase from its 2024 full-year average cost of $30,387 per BTC. Mining remains highly volatile and uncertain. From the valuation point of view, the mining business can be assessed in three ways: Assuming eventual conversion of mining assets into HPC, using the same valuation framework that you’ll see below but with conservative estimates yields a valuation of $1.47 per share. Valuing the mining segment using an EBITDA multiple of 7x, leading to a $1.53 per share valuation. The approach that we will use argues that creating an HPC data center takes a lot longer and is much more expensive than converting the existing mining datacenter. We can value the mining MW at $1.5m per MW, assuming the minimum price an HPC buyer will have to pay for them to acquire and convert them into hosting. This approach provides us with a valuation of $1.60. Moat Investing HPC Hosting CORZ’s multiple contracts with CoreWeave involve different revenue-per-MW terms, operational timelines, and deal structures. A discounted cash flow model was used to value these contracts with CoreWeave, employing a 6% discount rate due to the long term contracted nature of revenues. Management guides for 75-80% EBITDA margin, but a lower-bound estimate of 75% was used, with an additional 5% cost buffer for conservatism. The timeline for each contract is based on the guide provided by the management. The total share count of 373.94 million, accounting for potential dilution, was used in calculations. This contrasts with the share count of 294.12m that you’ll see on many financial platforms. I have also valued the remaining 310mw that CORZ is yet to lease. To reflect uncertainty, I am using 70% EBITDA margin lowered from the managements guide of 75-80%, with assumed full lease execution by late 2028. Moat Investing Moat Investing Moat Investing Moat Investing Moat Investing Moat Investing Consolidating the HPC valuation with the mining business and adding the value of 256 bitcoins that they hold on to their balance sheet, we get a valuation of $14.7 representing 64% upside. Moat Investing Conclusion Core Scientific’s transformation into an AI infrastructure provider, underpinned by its partnership with CoreWeave, offers a strong long-term growth trajectory. While near-term volatility exists due to execution risk, the company strategic pivot reduces its reliance on Bitcoin mining and enhances its profitability in the AI-driven compute sector. Despite market skepticism, CoreWeave’s recent $12 billion contract with OpenAI and increase in HPC leasing with CORZ underscores the growing demand for AI infrastructure, reinforcing the long-term viability of CORZ’s business model. As AI adoption accelerates, the need for High-Performance computing will only intensify. Market concerns over DeepSeek and Microsoft appear overblown, presenting an attractive investment opportunity. Additionally, recent insider purchases at $8 per share further validate confidence in CORZ’s future prospects.
