The 104 megawatt Bitcoin data center located in Marble, North Carolina, is owned by Core Scientific.
KEY POINTS:-
The AI business of bitcoin miner Core Scientific is set to grow dramatically.
Over a 12-year period, the agreement with cloud provider CoreWeave is anticipated to generate over $3.5 billion in additional income.
As the income from cryptocurrency mining declines, several bitcoin mining companies have been converting their current facilities to serve AI clients.
AUSTIN: Bitcoin miner Core Scientific has been subtly moving away from mining and towards artificial intelligence for the past five years. This is a market that will demand a tremendous amount of processing power to manage the enormous workloads that come with training AI models.
The relocation is no longer a mystery.
In order to provide infrastructure for use cases like machine learning, Core Scientific and cloud provider CoreWeave announced a 12-year agreement on Monday. Over the term of the contract, Core Scientific estimates that the agreement—which builds on an already-existing cooperation between the two companies—will generate revenue growth of more than $3.5 billion.
With support from Nvidia, CoreWeave leases out GPUs, which are necessary for AI model training and execution. In a fundraising round last month, CoreWeave was valued at $19 billion. About 200 megawatts of infrastructure will be provided by Core Scientific to support CoreWeave’s activities.
Core Scientific began mining a variety of digital assets in 2017 and came out of bankruptcy in January. In 2019, the business started branching out into other services.
Adam Sullivan, CEO of Core Scientific, told MONEYAERANA that “the best way to think about bitcoin mining facilities is that we are essentially power shells to the data centre industry.”
Following the fall of bitcoin in 2022, the corporation was on the verge of bankruptcy until Sullivan took over as CEO. Since then, when the company reentered the public market, the former investment banker has increased the size of its non-bitcoin operations and resolved debts with irate lenders.
Despite having increased in value by over 40% after relisting earlier this year, Core’s market capitalization of about $865 million is still far less than its July 2021 valuation of $4.3 billion.
After OpenAI unveiled ChatGPT in November 2022, there was a sudden surge in demand for AI compute and infrastructure, which led to a rush of investment in AI models and startups. Following the 50% reduction in bitcoin rewards given to miners in April, Core Scientific and other miners such as Bit Digital, Hive, Hut 8, and TeraWulf have been trying to increase their sources of income.
Many have been modifying their enormous facilities to better suit consumer demands.
James Butterfill, head of research at digital asset company CoinShares, stated that “Bitcoin miners, who are frequently stationed in energy-secure and energy-intensive data centers, find these facilities ideal for AI operations as well.”
According to Butterfill, the overlap is creating a battle for rack space between AI and bitcoin mining operations. According to a CoinShares research, although AI activities require up to 20 times the capital expenditure of bitcoin mining, they are more profitable.
“Increasing depreciation and amortisation due to the introduction of AI activities can improve gross profit margins,” according to Butterfill.
CoinShares claims that Bit Digital gets 27% of its revenue via artificial intelligence. AI accounts for 6% of Hut 8’s sales, while 4% of Hive’s revenue comes from data centres located in Sweden and Canada.
As part of its growth into new technologies generating higher returns, Hut 8 announced in its first-quarter results report that it had acquired its first batch of 1,000 Nvidia GPUs and signed a client agreement with a venture-backed AI cloud platform.
“Under a GPU-as-a-service model, we finalised commercial agreements for our new AI vertical, including a customer agreement which provides for fixed infrastructure payments plus revenue sharing,” stated Asher Genoot, CEO of Hut 8.
According to Genoot, the company anticipates turning a profit of roughly $20 million a year in the second part of the year.
By the end of April, Bit Digital claimed to have made approximately $4.1 million in revenue from its first AI contract, with 251 servers actively generating income.
Iris Energy projects that its AI cloud services will bring in $14 million to $17 million a year. The extended agreement between Core Scientific and CoreWeave is anticipated to generate $290 million in income annually.
“We expect to have a more diversified business model and more predictable cash flows, even though we intend to remain one of the largest and most productive bitcoin miners,” Sullivan stated.
Because of the volatility of bitcoin, mining is a difficult business.
Even though the price of bitcoin has increased by more than 150% in the last year to almost $69,000, the 2022 bear market pushed many miners to file for bankruptcy or close their doors completely.
A challenging transition to AI:-
Because the demands of the data network and high-performance computing (HPC) data centers differ, switching to AI is more complicated than just repurposing current hardware and infrastructure
Needham analysts stated in a study dated May 30 that “nearly all infrastructure miners currently have would need to be bulldozed and built from the ground up to accommodate HPC, aside from transformers, substations, and some switch gear.”
Application-Specific Integrated Circuits are the name for the mining rigs used to extract bitcoin (ASICs). They can only be used for mining cryptocurrency; they are not designed for other use.
Needham calculates that the capex of HPC data centres, excluding GPUs, runs between $8 million and $10 million per megawatt, while bitcoin mining sites typically run between $300,000 and $800,000 per megawatt, excluding ASICs.
According to Sullivan of Core, there is a great deal of overlap between the two companies.
He declared, “We have access to large amounts of power across the United States with access to fibre lines, which is one of the most exciting parts about the bitcoin mining business.”
In addition to announcing its collaboration with CoreWeave, Core Scientific said that it plans to transform 500 megawatts of its nationwide bitcoin mining infrastructure to HPC data centers over the course of the following three to four years.
According to Sullivan, the company owns and manages all of its data centre infrastructure, which makes the refit doable.
“To retrofit for HPC, there are some components that we have to buy, but they are things that we can easily acquire,” he stated.
Large publicly traded bitcoin miners are predicted by Needham analysts to more than double their power capacity in the next year or two, taking into account both their expansion plans for HPC businesses and mining.
Since clean energy is often the least expensive power source available, it is a popular option. Large-scale miners operate in a low-margin sector where energy is usually the only variable cost, therefore they have an incentive to move to the most affordable power sources available worldwide. According to an industry report, 54.5% of the energy used by the bitcoin network comes from renewable sources.
According to the Electric Power Research Institute, data centres may account for as much as 9% of the nation’s total electricity use by 2030, up from about 4% in 2023. Many believe that using nuclear energy can help meet that demand.
TeraWulf is trying to enter the machine learning space and uses nuclear energy to power its mining locations. The company now has two megawatts of HPC capacity, but it intends to move its whole energy infrastructure to AI and HPC.
Altman remarked, “I don’t see a way for us to get there without nuclear.” With just solar and storage, perhaps we could make it there. However, in my opinion, this is the most practical and effective route to take.
When it comes to meeting the demands of AI workloads, OpenAI CEO Sam Altman told CNBC last year that he is a huge believer in nuclear power.
