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Bitcoin miners invest millions in the AI business and seek billions in return
Core Scientific’s 104-megawatt Bitcoin mining data center in Marble, North Carolina
Carey McKelvey
AUSTIN — For five years, bitcoin miner Scientific core it is quietly diversifying from mining into artificial intelligence, a market that will require immense amounts of power to handle training AI models and the enormous workloads that come with it.
The move is no longer a secret.
On Monday, Core Scientific announced a 12-year agreement with cloud services provider CoreWeave to provide infrastructure for use cases such as machine learning. Core Scientific said the deal, which expands the existing partnership between the two companies, will add more than $3.5 billion in revenue over the life of the contract.
CoreWeave, supported by Nvidia, rents graphics processing units (GPUs), which are necessary for training and running AI models. CoreWeave has been evaluated $19 billion in a funding round last month. Core Scientific will provide approximately 200 megawatts of infrastructure to CoreWeave operations.
Core Scientific, which emerged from bankruptcy in January, has been mining 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 shells for the data center industry,” Adam Sullivan, CEO of Core Scientific, told CNBC.
Sullivan stepped into the CEO role while the company was still in the throes of bankruptcy, a consequence of bitcoin’s collapse in 2022. Since then, the former investment banker has paid off debts to angry lenders and further strengthened the non-financial strategy. the company’s bitcoin. business when it re-entered the public market.
Although Core has grown more than 40% since its relisting earlier this year, its market capitalization of about $865 million is significantly smaller than Core’s. its valuation of $4.3 billion in 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 sought to bolster their revenue streams after the so-called bitcoin halving in April cut the rewards paid to bitcoin miners by 50%.
Many have adapted their huge facilities to meet market needs.
“Bitcoin miners, often stationed in secure, 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 shelf space between bitcoin mining and artificial intelligence businesses. 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 businesses 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 artificial intelligence. Hut 8 generates 6% of its sales from artificial intelligence, and Hive, which has data centers in Canada and Sweden, gets 4% of its revenue from these services.
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Hut 8 said in his first quarter earnings report that it purchased its first batch of 1,000 Nvidia GPUs and secured a customer deal with a venture-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 fixed infrastructure payments plus revenue sharing,” said Asher Genoot, CEO of Hut 8.
Genoot added that the company expects to start generating revenue in the second half of the year at an annual rate of about $20 million.
A little digital it had 251 servers actively generating revenue since its first AI contract at the end of April, and the company said it earned 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 expect to have a diversified business model and more predictable cash flows,” Sullivan said.
Bitcoin’s volatility has made mining a challenging activity.
While bitcoin is currently up more than 150% over the past year to around $69,000, the 2022 bear market has sent many miners into bankruptcy or forced them to shut down altogether.
Complicated transition to artificial intelligence
Moving to artificial intelligence is not as simple as reorienting existing infrastructure and machines, because the requirements of High Performance Computing (HPC) data centers are different, as are the needs of the data network.
“Other than transformers, substations, and some switchgear, nearly all of the infrastructure that miners currently have would have to be demolished and built from scratch to accommodate HPC,” Needham analysts wrote in a May 30 report.
The rigs used to mine bitcoin are called application-specific integrated circuits (ASICs). They are built specifically for cryptocurrency mining and cannot be used to do other things.
Needham estimates that HPC data centers operate between $8 and $10 million per megawatt in capex, excluding GPUs, while bitcoin mining sites typically operate between $300,000 and $800,000 per megawatt in capex, excluding ASICs .
Core’s Sullivan says there is a lot of synergy between the two businesses.
“One of the most interesting aspects of the bitcoin mining business is that we have access to large amounts of energy throughout the United States thanks to access to fiber lines,” he said.
In addition to the partnership with CoreWeave, Core Scientific also announced that over the next three to four years it will work to convert 500 megawatts of its bitcoin mining infrastructure across the country into HPC data centers.
Sullivan said the adjustment is manageable because the company owns and controls all of its data center infrastructure.
“There are components we need to purchase to upgrade to HPC, but they are things we can acquire easily,” he said.
Over the next year or two, Needham analysts estimate that large, publicly traded bitcoin miners are expected to more than double energy capacity, including plans to expand their mining and HPC businesses.
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 migrate to the world’s cheapest energy sources. A industry report estimates that the bitcoin network is powered by 54.5% sustainable electricity.
THE Estimates from the Electric Power Research Institute that data centers could absorb up to 9% of the country’s total electricity consumption by 2030, up from about 4% in 2023. Harnessing nuclear power is seen by many as the answer to meeting that 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 power infrastructure to AI and HPC.
OpenAI CEO Sam Altman told CNBC last year who is a firm believer in going nuclear when it comes to meeting the needs of AI workloads.
“I don’t see a way to get there without nuclear,” Altman said. “I mean, maybe we could get there with just solar energy and storage. But from my perspective, I feel like this is the most likely and best way to get there.”
