Business Overview and History
Incorporated in 2018, Core Scientific initially made its mark as a premier provider of dedicated, purpose-built facilities and software solutions for digital asset mining, with a focus on earning bitcoin for its own account through self-mining operations. Over the years, the company established itself as one of the largest North American providers of hosting services for third-party digital asset miners.
In 2021, Core Scientific took a significant step in its growth journey by going public through a merger with XPDI, a special purpose acquisition company. This move provided the company with additional capital to fund its expansion plans. However, the volatile nature of the cryptocurrency market and other factors led to challenges, and in late 2022, Core Scientific filed for Chapter 11 bankruptcy protection.
Despite this setback, the company demonstrated remarkable resilience. Through the bankruptcy process, Core Scientific was able to successfully restructure its balance sheet and emerge as a stronger entity in January 2024. This restructuring laid the foundation for the company's strategic pivot later that year.
A pivotal moment in Core Scientific's evolution came in March 2024 when the company announced its entry into the high-performance computing (HPC) market by providing digital infrastructure colocation services to a third party. This marked a significant shift in the company's focus beyond digital asset mining. The strategic transition gained further momentum in May 2024 when Core Scientific expanded its relationship with its HPC customer CoreWeave, agreeing to provide approximately 200 megawatts of digital infrastructure to host CoreWeave's HPC operations.
Throughout 2024, Core Scientific undertook a massive transformation of its operations. The company was substantially engaged in constructing, refurbishing, reallocating, or converting a significant portion of its ten data center facilities to support artificial intelligence-related workloads, primarily for its HPC customer CoreWeave. This strategic transition from bitcoin mining to hosting and colocation services for HPC workloads presented a major challenge that the company successfully navigated during this period.
Business Segments
Core Scientific operates in three main business segments:
Digital Asset Self-Mining
This segment generates revenue from the deployment and operation of the company's own large fleet of specialized computers, known as miners, within its owned digital infrastructure. These miners perform computational operations to validate transactions on blockchain networks, primarily the Bitcoin network, in exchange for digital asset rewards, primarily bitcoin. For the year ended December 31, 2024, the company's self-mining hash rate increased by 13% to 19.1 exahashes per second (EH/s), up from 16.9 EH/s in the prior year. This increase was driven by the deployment of additional miners, contributing to a 5% increase in digital asset self-mining revenue to $408.7 million for the year. However, the segment's revenue was impacted by a 50% decrease in Bitcoin block rewards due to the network's halving event in April 2024, as well as a 66% increase in the 12-month average Bitcoin network hash rate.
Digital Asset Hosted Mining
This segment generates revenue through the sale of electricity-based consumption contracts for hosting services provided to third-party digital asset mining customers. Revenue from this segment decreased by 24% to $77.6 million for the year ended December 31, 2024, primarily due to the termination of contracts with several customers as the company shifted its focus towards its HPC Hosting business.
HPC Hosting
Initiated in the second quarter of 2024, this segment generates revenue by providing colocation, cloud, and connectivity services to customers running high-performance computing workloads such as machine learning and artificial intelligence. For the year ended December 31, 2024, the HPC Hosting segment contributed $24.4 million in revenue. The company has secured approximately 1.32 gigawatts (GW) of contracted power capacity to support its existing and planned HPC operations, as well as its digital asset mining activities.
Financial Performance and Outlook
Financials
Core Scientific's financial performance in 2024 was marked by the impact of its strategic pivot, as the company navigated the challenges of the bitcoin halving event and the deliberate shutdown of certain mining operations to accommodate the CoreWeave HPC hosting contract.
For the full year 2024, the company reported total revenue of $510.7 million, a 2% increase from the prior year. Digital asset self-mining revenue accounted for $408.7 million, or 80% of total revenue, while the newly launched HPC hosting segment contributed $24.4 million. Gross profit for the year was $121.1 million, resulting in a gross margin of 24%.
In the most recent quarter, Core Scientific reported revenue of $94.9 million, a 33% decline from the prior year period. This decrease was primarily driven by a 29% reduction in digital asset self-mining revenue to $79.9 million, as the company mined 974 bitcoins compared to 3,042 in the prior year quarter, partially offset by a 130% increase in the price of bitcoin. Digital asset hosted mining revenue declined 78% to $6.5 million as the company sunseted those operations. HPC hosting revenue contributed $8.5 million in the quarter.
The company reported a net loss of $265.5 million in the most recent quarter, compared to a net loss of $195.7 million in the prior year period. This increase in net loss was primarily due to noncash mark-to-market adjustments related to the company's convertible notes and warrant liabilities.
Liquidity
Despite the operational hurdles, Core Scientific was able to significantly strengthen its balance sheet in 2024. Through a series of debt restructuring initiatives, the company reduced its total debt by $270 million. This was further bolstered by the successful completion of two convertible note offerings, totaling $1.08 billion, which allowed the company to pay off existing senior debt, eliminate restrictive covenants, and substantially reduce its interest expense.
As of the most recent quarter, Core Scientific had $836 million in cash and cash equivalents. The company's total debt stood at $1.12 billion, including $460 million in 3% convertible senior notes due 2029 and $625 million in 0% convertible senior notes due 2031. The company's current ratio and quick ratio both stand at 6.72, indicating a strong short-term liquidity position.
Guidance and Future Outlook
Looking ahead, Core Scientific's management has outlined several key priorities for 2025 and beyond, including:
- Diversifying its customer base beyond CoreWeave
- Successfully executing on its existing HPC contracts
- Continuing to expand its capacity organically and through strategic acquisitions
The company is currently in active discussions with a majority of the hyperscale cloud providers and large enterprises, aiming to reduce CoreWeave's contribution to its total critical IT load to below 50% by the end of 2028.
For 2025, Core Scientific is modeling a statutory effective tax rate of 22%. The company has over $300 million in net operating loss carry-forwards, which will reduce future cash taxes. Core Scientific is not planning any further capital expenditures in 2025 associated with its Bitcoin mining business, as it does not expect to increase or refresh its Bitcoin mining fleet until procuring new block ASIC chips in the second half of 2025.
Regarding HPC hosting capacity expansion, Core Scientific is targeting to have delivered approximately 250 megawatts of HPC capacity to CoreWeave by the end of 2025, with the full 590 megawatts coming online in early 2027 (revised from the previous timeline). The company believes it can add another 300 megawatts of HPC capacity across its existing sites by the end of 2027 and aims to add approximately 400 megawatts of new HPC capacity over the next three years.
Risks and Challenges
While Core Scientific's pivot to the HPC hosting market has shown promising results, the company faces several risks and challenges that investors should consider.
The highly competitive nature of the data center and HPC hosting industry, coupled with the company's reliance on a limited number of large customers, such as CoreWeave, presents a potential risk. Any disruption to these key customer relationships or the loss of a major contract could have a significant impact on Core Scientific's financial performance.
Additionally, the company's capital-intensive business model and the need for continued investment in infrastructure to support its growth plans could strain its financial resources, particularly if the company is unable to secure additional financing on favorable terms.
Furthermore, the rapidly evolving regulatory landscape surrounding digital assets and the potential for increased scrutiny or restrictions on the industry could pose challenges for Core Scientific's legacy bitcoin mining operations and its overall business strategy.
Conclusion
Core Scientific's transformation from a prominent bitcoin mining company to a leading provider of HPC hosting services is a testament to the company's adaptability and foresight. By leveraging its expertise in building and operating high-density, energy-efficient data centers, Core Scientific has positioned itself at the forefront of the AI revolution, catering to the growing demand for the computational power required to power the next generation of intelligent applications.
As the company continues to execute on its strategic priorities, investors will closely monitor its ability to diversify its customer base, successfully deliver on its HPC hosting contracts, and navigate the evolving regulatory landscape. With a strengthened balance sheet and a focus on innovation, Core Scientific appears well-positioned to capitalize on the immense opportunities presented by the AI-driven digital infrastructure market.