Core Scientific’s Strategic Shift: A Promising Future Ahead
In a recent note from Cantor Fitzgerald, the potential acquisition of Core Scientific (CORZ) by CoreWeave has garnered substantial attention, projecting CORZ’s share value above $30. This forecast is primarily informed by the company’s burgeoning AI contracts and the significant worth of its existing data centers. The announcement came on the heels of The Wall Street Journal’s report that CoreWeave is re-engaging in negotiations after a previous unsuccessful bid at $5.75 per share in 2024.
Current Market Position
Following these revelations, Core Scientific’s stock surged over 33%, breaching the $16 mark. Cantor Fitzgerald’s analysts argue that CORZ remains undervalued by at least 50%. Central to this bullish outlook is a 12-year, $3.5 billion infrastructure lease signed with CoreWeave in 2024, whereby Core Scientific offers 200 megawatts of AI-capable infrastructure. Using a conservative 15x profit multiple—similar to valuations seen for traditional data center Real Estate Investment Trusts (REITs)—this lease is evaluated at approximately $24 per share.
The Transition from Bitcoin Mining to AI
The premise that Core Scientific is strategically transitioning from Bitcoin (BTC) mining to unleashing potential in AI reflects a broader industry trend. Rittenhouse Research also supports this narrative, noting that thriving crypto companies are pivoting toward serving as AI infrastructure providers rather than doubling down on Bitcoin. This shift is evidenced by Galaxy Digital’s acquisition of the Helios Data Center in late 2022, a move that underscores the escalating demand for data center capacity with the rise of technologies like ChatGPT and large language models (LLMs).
Stability Over Volatility
A significant advantage of this pivot is the stable, long-term cash flows associated with AI deployments compared to the erratic revenue patterns from BTC mining, which fluctuates notably during market halvings. As Rittenhouse highlights, even successful mining operations face mounting challenges to optimize their efficiencies with each new chip generation, a process that’s become increasingly complex.
Successes and Failures in Transitioning
Although Core Scientific’s transition is being positively received, it is essential to recognize that not all organizations have fared well in steering away from BTC. As reported by CoinDesk, Bit Digital faced a 15% stock drop after announcing its exit from Bitcoin to focus on Ethereum staking. Similarly, Canaan Technologies, which once explored diversifying into AI hardware, has since closed its chip production unit, leading to a staggering 75% decline in its stock value over six months.
The Future Landscape of AI Infrastructure
Despite the challenges faced by others, Core Scientific’s approach may represent a balanced strategy that effectively leverages its mining operations to tap into a flourishing $100 billion AI infrastructure market. If Cantor Fitzgerald’s projections are accurate, CoreWeave’s subsequent offer could drastically differ from last year’s proposition, potentially creating a new blueprint for the industry at large.
In conclusion, as the tech landscape evolves, Core Scientific appears poised for substantial growth by repositioning itself within the rapidly expanding AI sector. Shareholder optimism reflects a belief that the company’s strategic initiatives will not only enhance its market standing but could also catalyze a significant transformation across the sector, setting a precedent for others in the industry.
