Key Takeaways
- Core Scientific rejected an all-stock acquisition proposal from CoreWeave, choosing instead to pursue a strategic, long-term hosting agreement that fundamentally alters its business model.
- The market’s initial negative reaction reflected uncertainty over the valuation of a private acquirer, but the narrative has shifted to the more tangible economics of the new high-performance computing (HPC) contracts.
- The new agreements are projected to generate over $3.5 billion in revenue for Core Scientific over a 12-year term, diversifying its income away from the volatility of Bitcoin mining.
- This pivot transforms Core Scientific into a hybrid data centre operator, demanding a new valuation framework that blends the risk profile of digital asset mining with the steadier, long-term revenue streams of HPC infrastructure.
- The key investment variable is no longer CoreWeave’s notional private valuation, but Core Scientific’s ability to execute the capital-intensive build-out of 200 megawatts of HPC-capable infrastructure.
The market’s initial reaction to CoreWeave’s unsolicited approach to acquire Core Scientific was one of pronounced scepticism. The immediate drop in Core Scientific’s share price, following the news of a potential all-stock deal, suggested a deep lack of confidence in the private valuation of CoreWeave and the structural risks of such a transaction. However, this initial chapter of the story has proven to be a prelude to a more complex and strategically significant development: Core Scientific’s rejection of the bid in favour of a series of long-term, high-value contracts to provide high-performance computing (HPC) infrastructure for CoreWeave. This pivot from a potential takeover target to a critical infrastructure partner has fundamentally reshaped the investment case for Core Scientific.
From Takeover Target to Strategic Partner
In early June 2024, reports emerged that CoreWeave, a specialised cloud provider for AI and HPC workloads, had made an offer to acquire Core Scientific for approximately $5.75 per share, valuing the company at just over $1 billion. The proposed all-stock transaction immediately invited scrutiny. Tying the fate of publicly traded Core Scientific shares to the opaque valuation of a private entity like CoreWeave introduced significant arbitrage risk and uncertainty, which the market priced in accordingly.
Yet, the narrative swiftly evolved. Core Scientific’s board rejected the offer, asserting that it undervalued the company. More importantly, this rejection was immediately followed by the announcement of a landmark strategic partnership. Core Scientific signed a series of 12-year contracts to supply CoreWeave with roughly 200 megawatts (MW) of power and infrastructure for its HPC operations. This move was not a defensive manoeuvre but a calculated strategic pivot, leveraging its core asset—data centre infrastructure—to capture a more stable revenue stream from the booming AI sector.
The Economics of the Pivot
The new agreements are transformative for Core Scientific, a company that recently emerged from bankruptcy and has been working to solidify its financial footing. The deal diversifies its business model, which was previously almost entirely dependent on the volatile economics of Bitcoin mining. The company itself has projected the financial impact, providing a clearer picture than any notional takeover valuation could offer.
| Metric | Projected Impact |
|---|---|
| Total Contracted Power | ~200 MW |
| Projected Cumulative Revenue | Over $3.5 billion |
| Contract Duration | 12 years |
| Estimated Annual Revenue at Full Deployment | ~$290 million |
| Required Capital Expenditure (Funded by CoreWeave) | ~$300 million |
This long-term, contractually secured revenue provides a crucial stabilising element to a business model historically subject to the whims of cryptocurrency markets. It also confirms the underlying value of Core Scientific’s physical assets and operational expertise in managing large-scale data centres, a point the board likely emphasised when deeming the takeover bid insufficient.
A New Framework for Valuation
The market is now tasked with re-evaluating Core Scientific not as a pure-play Bitcoin miner, but as a hybrid infrastructure company. This requires a shift in valuation perspective. While the company’s profitability will still be influenced by its mining operations, the HPC hosting segment introduces a durable, predictable income stream more akin to that of traditional data centre REITs or infrastructure providers.
This transition materially de-risks the company’s profile. The firm’s Q1 2024 results already demonstrated a return to GAAP profitability post-restructuring, with a reported net income of $210.7 million, albeit bolstered by a significant one-off gain. The addition of the CoreWeave contracts provides a clear path to sustained and growing cash flow that is uncorrelated to the price of Bitcoin.
The central question for investors is no longer about the theoretical value of CoreWeave shares in a hypothetical 2025 closing. Instead, the focus must be on execution. Can Core Scientific deliver the 200 MW of specialised infrastructure on time and within budget? The contracts include provisions for CoreWeave to fund the necessary capital expenditures, mitigating a significant portion of the financial risk for Core Scientific. However, operational and timeline risks remain.
As a speculative hypothesis, the market will likely remain in a ‘show me’ phase for several quarters. Core Scientific’s share price will probably trade in a range, influenced by both Bitcoin price fluctuations and news flow regarding the HPC build-out. A significant re-rating towards a valuation multiple more aligned with data centre peers will only occur once the first phases of the HPC infrastructure come online and begin generating demonstrable revenue. The ultimate arbiter of value has shifted from a private market valuation to public market execution.
References
Core Scientific. (2024, June 3). Core Scientific Signs Series of 12-Year Contracts with CoreWeave. Core Scientific Investor Relations. Retrieved from the company’s official website.
Core Scientific. (2024, May 9). Core Scientific Announces First Quarter 2024 Financial Results. Core Scientific Investor Relations. Retrieved from the company’s official website.
Kharpal, A. (2024, June 3). Core Scientific shares surge on report of buyout talks with CoreWeave. CNBC. Retrieved from cnbc.com.
Caspi, M. (2024, July 1). CoreWeave Buys Core Scientific in $9 Billion Stock Deal to Power AI Expansion. Ainvest. Retrieved from ainvest.com.
