Executive Summary / Key Takeaways

• Core Scientific is undergoing a significant transformation, strategically pivoting from a primary Bitcoin mining focus to becoming a leading provider of high-density digital infrastructure for AI and High-Performance Computing (HPC) workloads.
• The foundational partnership with CoreWeave, representing approximately 590 megawatts of contracted capacity and over $10 billion in potential revenue, provides a stable, long-term revenue stream with a capital-efficient structure where CoreWeave funds the majority of the build-out CapEx.
• The company is actively expanding its capacity pipeline through organic growth at existing sites (targeting 300 MW additional) and new site development/M&A (targeting 400 MW additional), aiming for over 1 GW total HPC capacity by late 2027 to diversify its customer base beyond CoreWeave.
• Operational execution on the CoreWeave build-out is progressing, with specific delivery milestones targeted (8 MW in May 2025, 40 MW by end Q2 2025, 250 MW by end 2025, 590 MW by early 2027), demonstrating the company's capability in deploying high-density infrastructure at scale despite supply chain complexities.
• While the Bitcoin mining segment faces pressure from the recent halving and network difficulty, the company is optimizing operations and plans a fleet refresh with new Block ASIC chips in H2 2025, positioning it to benefit from potential future increases in Bitcoin price.

The Genesis of a Digital Infrastructure Powerhouse

Core Scientific, founded in 2018, built its initial foundation as a significant player in the digital asset mining industry. Its early focus was on developing and operating purpose-built data centers optimized for Bitcoin mining, serving both its own self-mining operations and providing hosting services for third-party miners. This history instilled deep expertise in managing high-power digital infrastructure, navigating complex energy markets, and optimizing hardware performance at scale.

The company's journey included a challenging period culminating in a Chapter 11 bankruptcy filing, from which it successfully emerged in January 2024. This restructuring significantly deleveraged the balance sheet and provided a fresh start, positioning Core Scientific to capitalize on new opportunities.

Recognizing the burgeoning demand for specialized infrastructure driven by the rapid advancements in Artificial Intelligence and High-Performance Computing, Core Scientific initiated a strategic pivot in early 2024. Leveraging its existing data center footprint, power infrastructure, and operational know-how, the company began converting a significant portion of its facilities to support high-density GPU workloads. This strategic shift is not merely an expansion but a fundamental transformation aimed at diversifying revenue streams, enhancing stability, and tapping into a high-growth market segment.

Central to this transformation is a landmark partnership with CoreWeave, a leading AI Hyperscaler. Announced in a series of agreements starting in March 2024, this collaboration has rapidly expanded to become the cornerstone of Core Scientific's new Colocation segment. By February 2025, the total contracted capacity with CoreWeave reached approximately 590 megawatts, representing over $10 billion in potential contracted revenue over the life of the agreements. This partnership is foundational, providing a significant, long-term revenue base that underpins the company's strategic evolution.

Technological Prowess and Operational Excellence

Core Scientific's competitive positioning is significantly shaped by its deep operational expertise and technological capabilities, honed over years in the demanding Bitcoin mining environment. The company has developed specialized knowledge in designing, constructing, and operating high-power data centers, particularly those requiring high-density power delivery and efficient thermal management.

A key differentiator lies in its proprietary thermodynamic solution and data center design principles. These capabilities, initially developed for optimizing air-cooled Bitcoin mining operations, are now being adapted and leveraged for the even more stringent requirements of high-density GPU clusters. While specific quantifiable metrics comparing the performance benefits of this proprietary technology in the HPC context are still emerging as facilities come online, the company emphasizes its ability to manage heat and airflow effectively to deliver high uptime, a critical factor for HPC workloads. The experience gained from operating over 700,000 machines from various manufacturers provides unique insights into hardware performance, optimization, and repair, contributing to operational efficiency.

The strategic agreement with Block (SQ) to procure new 3-nanometer ASIC chips, expected in the second half of 2025, highlights the company's commitment to technological advancement even within its traditional mining segment. These chips, combined with Core Scientific's proprietary firmware, fleet management, and energy management software, are intended to enhance the efficiency and hash rate of its self-mining fleet. The company is designing a new air-cooled form factor for these chips, aiming to maximize production without requiring significant infrastructure overhauls in its dedicated Bitcoin mining facilities. While specific efficiency gains are not yet quantified, the stated goal is to improve operating efficiency and profitability in the mining segment.

This blend of established operational expertise, proprietary design principles, and ongoing technological development positions Core Scientific to address the unique infrastructure demands of the AI era, differentiating it from both traditional data center providers and less experienced market entrants.

Navigating a Dynamic Competitive Landscape

Core Scientific operates within two distinct yet increasingly overlapping competitive arenas: digital asset mining and high-density HPC colocation.

In the digital asset mining space, competition is intense, involving a myriad of global players, including other publicly traded miners like Marathon Digital Holdings (MARA), Riot Platforms (RIOT), Bit Digital (BTBT), and CleanSpark (CLSK), as well as private entities and even sovereign nations. Competition spans every aspect, from acquiring the latest mining hardware and securing low-cost electricity to accessing high-power sites and raising capital. The increasing network hash rate and difficulty necessitate continuous investment in more efficient hardware to maintain a competitive edge. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Core Scientific has historically maintained a significant operational scale. However, its recent financial performance in the mining segment, impacted by the halving and strategic reallocation of capacity, shows negative gross margins in Q3 2024 and significantly reduced margins in Q1 2025 compared to Q1 2024, reflecting the challenging post-halving economics. Competitors like MARA and RIOT have demonstrated stronger recent financial metrics (e.g., better operating margins and revenue growth rates in 2023), indicating potential advantages in cost structure or growth execution in the mining-focused segment.

In the emerging high-density colocation market for HPC, Core Scientific competes with a different set of players, including major data center REITs (like Equinix (EQIX), Digital Realty (DLR)), developers, hyperscalers building their own capacity, and other Bitcoin miners converting or building suitable infrastructure. This competition focuses heavily on identifying and acquiring sites with access to significant, reliable power and the capital required to build or modify facilities for high-density workloads. The procurement of critical equipment and skilled labor for these specialized builds is also a point of intense competition.

Core Scientific positions itself in this market by leveraging its unique background:

• Operational Expertise: Its history in high-power Bitcoin mining provides a depth of operational knowledge that traditional data center providers may lack when dealing with the extreme densities required for AI.
• Infrastructure Portfolio: The existing portfolio of sites with access to substantial power provides a head start compared to developing greenfield sites from scratch.
• Strategic Focus: By explicitly focusing on high-density colocation, Core Scientific aims to fill a gap where traditional providers are struggling to adapt their legacy infrastructure.
• Partnership Model: The CoreWeave partnership, particularly its capital-efficient structure, differentiates Core Scientific's approach to funding growth compared to models requiring significant upfront capital outlay from the provider.

Management believes its team's experience in data center design and systems integration, combined with its operational track record, provides a competitive advantage in executing complex conversions and new builds for HPC. They highlight being among the leaders in contracted HPC capacity signed in 2024 and the scale of the Denton build-out as proof points of their execution capability, which they believe breeds confidence with potential customers. The company is actively seeking to diversify its customer base beyond CoreWeave, engaging with hyperscalers and large enterprise customers (seeing opportunities for 50-100 MW deals), which could represent anchor tenants for new sites and reduce customer concentration risk. The competitive landscape for new sites is described as tight, requiring expertise in identifying opportunities outside traditional brokered processes, including brownfield conversions where Core Scientific has prior experience.

Financial Performance and Liquidity

Core Scientific's recent financial performance reflects the ongoing strategic transition and the challenging dynamics in the Bitcoin mining market post-halving.

For the three months ended March 31, 2025, total revenue decreased significantly to $79.5 million from $179.3 million in the prior year period. This 56% decline was primarily driven by a substantial decrease in Digital Asset Self-Mining revenue ($67.2 million vs. $150.0 million) and Digital Asset Hosted Mining revenue ($3.8 million vs. $29.3 million). The drop in self-mining revenue was mainly due to a 75% decrease in Bitcoin mined (719 vs. 2,825), resulting from the operational shift towards Colocation, the April 2024 halving, a decrease in deployed mining units, and increased network difficulty. This was partially offset by a 74% increase in the average price of Bitcoin. Hosted mining revenue declined sharply as the company sunsets these contracts to free up capacity for HPC. The new Colocation segment contributed $8.6 million in revenue in Q1 2025, compared to nil in Q1 2024, marking the initial revenue contribution from the strategic pivot.

Gross profit plummeted to $8.2 million in Q1 2025 from $77.6 million in Q1 2024, with the consolidated gross margin falling from 43% to 10%. The Digital Asset Self-Mining segment saw its gross margin collapse from 46% to 9%, primarily due to the lower Bitcoin production despite lower power costs and depreciation. The Hosted Mining segment's gross margin increased from 32% to 46%, as costs decreased more sharply than revenue. The nascent Colocation segment reported a 5% gross margin in Q1 2025.

Selling, general and administrative expenses increased substantially to $40.1 million in Q1 2025 from $16.9 million in Q1 2024, driven by higher stock-based compensation and costs associated with the Colocation segment's site startup activities and increased headcount.

Operating loss for Q1 2025 was $42.6 million, a significant deterioration from operating income of $55.2 million in Q1 2024, reflecting the combined impact of lower mining revenue and higher operating expenses.

Net income, however, showed a dramatic increase to $580.7 million in Q1 2025 compared to $210.7 million in Q1 2024. This was primarily due to a massive non-operating gain from the change in fair value of warrants and contingent value rights ($621.5 million gain in Q1 2025 vs. $60.1 million gain in Q1 2024), driven by a decrease in the company's stock price during the quarter. Net interest expense also decreased due to lower interest rates and increased proceeds from money market funds. These non-cash and non-operating items significantly impacted the reported net income, masking the operational challenges in the mining segment.

Liquidity remains a key focus. As of March 31, 2025, Core Scientific held $697.9 million in cash and cash equivalents and $80.6 million in digital assets. Net cash used in operating activities was $40.6 million in Q1 2025, a shift from $22.2 million provided in Q1 2024, reflecting the operational performance and changes in working capital, including customer prepaid base license fees ($42.0 million) funding CapEx. Net cash used in investing activities increased significantly to $93.5 million, primarily due to purchases of property, plant, and equipment ($88.4 million, largely for Colocation) and a strategic equity investment. Net cash used in financing activities was $4.2 million, compared to $54.4 million provided in the prior year, reflecting the absence of major equity raises or debt draws seen in Q1 2024 post-bankruptcy emergence.

The company's capital structure includes approximately $1.09 billion in total notes payable (net) as of March 31, 2025. Management believes its current liquidity, expected operating cash flows, and access to debt markets will be sufficient for its cash requirements over the next twelve months and beyond. The capital-efficient nature of the CoreWeave contracts, where the client funds most CapEx (except for a $104 million direct outlay by CORZ for a 70 MW expansion), is crucial for managing liquidity during the build-out phase. For future uncontracted expansion, the company anticipates utilizing traditional project financing and may fund some CapEx itself, targeting a net debt to adjusted EBITDA leverage ratio around 4 times, consistent with data center peers. The company also holds over $380 million in net operating loss carryforwards, which will reduce future cash tax obligations.

Outlook and Strategic Trajectory

Core Scientific's outlook is firmly centered on the continued execution of its strategic pivot to high-density HPC colocation and the expansion of its digital infrastructure footprint.

Management has provided concrete guidance and targets for the HPC build-out and capacity growth:

• CoreWeave Delivery: The ramp-up of the 590 MW contracted capacity for CoreWeave is underway. The first 8 megawatts at the Denton facility are expected to be delivered in May 2025, with an additional 40 megawatts by the end of Q2 2025. The company targets delivering approximately 250 megawatts of HPC capacity (inclusive of the Austin site) by the end of 2025 and the full 590 megawatts by early 2027. This timeline reflects the complexity of the projects and adjustments made in collaboration with CoreWeave to optimize designs and align with supply chain realities.
• Capacity Expansion: Beyond the CoreWeave build-out, Core Scientific is actively pursuing significant capacity expansion. It remains confident in its ability to add approximately 300 megawatts of billable capacity across its existing sites by the end of 2027 by securing additional power from local utilities. Furthermore, the company is targeting an additional 400 megawatts of buildable capacity through new site development (greenfield and brownfield opportunities) and strategic M&A over the next three years. This aggressive expansion aims to bring the total HPC hosting capacity to over 1 gigawatt by the end of 2027.
• Customer Diversification: A key strategic priority is to diversify the customer base. The target is for CoreWeave to represent less than 50% of billable capacity by the end of 2028. The expanded capacity pipeline (300 MW at existing sites, 400 MW new sites) is intended to provide the inventory needed to attract new customers. The company is actively engaged in discussions with both hyperscale providers and large enterprise customers, seeing opportunities for substantial deals (50-100 MW) that could serve as anchor tenants for new sites.
• Bitcoin Mining Optimization: While the focus shifts, the Bitcoin mining segment will be optimized within the remaining infrastructure (approximately 400 MW). This involves consolidating operations at specific sites to leverage favorable power prices and implementing strategic power management. The planned deployment of Block's 3nm ASIC chips in H2 2025 is expected to improve fleet efficiency and increase hash rate, positioning the segment to benefit from potential future increases in Bitcoin price. The hosted mining business is expected to continue sunsetting through 2025.

Management's confidence in achieving these targets is rooted in its operational track record, strong relationships with utilities, and ability to manage complex construction projects and supply chain dynamics. They believe the AI-driven demand for high-density infrastructure remains strong, particularly from large enterprises just beginning to roll out AI use cases.

Risks and Considerations

Despite the compelling strategic vision and growth potential, investors should be mindful of several key risks and challenges facing Core Scientific:

• Execution Risk: The successful conversion and build-out of high-density HPC infrastructure on the guided timelines is critical. This involves complex construction, managing supply chain constraints (particularly for long lead-time items like switchboards, static transfer switches, and generators), and coordinating with partners like CoreWeave. Delays or cost overruns could impact revenue recognition and profitability.
• Customer Concentration: While diversification is a strategic priority, CoreWeave currently represents a very significant portion of the contracted HPC revenue. The risk of nonperformance by this single large customer, although mitigated by contract structure and security interests, remains material.
• Market Volatility: The Bitcoin mining segment remains exposed to the inherent volatility of digital asset prices, network hash rate, and mining difficulty. While the strategic pivot aims to reduce this exposure over time, it will continue to impact a portion of the company's revenue and profitability in the near to medium term.
• Power Costs: Electricity is a major operating expense for both mining and HPC. Fluctuations in energy prices due to seasonal demand, weather events, geopolitical factors, or changes in power market dynamics can significantly impact operating margins.
• Competition: Core Scientific faces intense competition in both its segments. In HPC, it competes with established data center giants and other aggressive developers for sites, power, and customers. In mining, it competes on efficiency and scale in a post-halving environment. The ability to secure new customers and expand capacity depends on successfully competing in these dynamic markets.
• Regulatory Environment: The regulatory landscape for both digital assets and data center operations, particularly concerning energy consumption and environmental impact, continues to evolve and could introduce new costs or restrictions.
• Tariffs: Recent U.S. government tariffs on imported goods raise concerns about potential price inflation and delivery delays for equipment needed for both HPC conversions and mining operations, which could impact CapEx and build timelines.

Management acknowledges these risks and has outlined strategies to mitigate them, such as focusing on capital-efficient growth, actively pursuing customer diversification, managing supply chain through alternative sourcing, and leveraging strong utility relationships.

Conclusion

Core Scientific is at a pivotal juncture, executing a bold strategic pivot to transform from a predominantly Bitcoin mining company into a significant provider of high-density digital infrastructure for the booming AI and HPC markets. The foundational partnership with CoreWeave provides a substantial, capital-efficient revenue base, offering a degree of stability and predictability previously absent in its business model.

While the legacy Bitcoin mining segment faces near-term pressures from the halving, the company's focus on optimizing operations and deploying next-generation hardware aims to maintain its competitive position in that market. The core investment thesis now rests on Core Scientific's ability to successfully execute the complex build-out of contracted HPC capacity, expand its infrastructure footprint through organic growth and new site acquisitions, and effectively diversify its customer base.

The company's operational expertise, established power infrastructure relationships, and strategic focus on high-density solutions position it to capitalize on the immense demand for AI compute capacity. Investors should closely monitor the progress of the CoreWeave build-out against stated timelines, the securing of new capacity, and the signing of contracts with new customers as key indicators of the successful execution of this transformative strategy and its potential to unlock significant long-term value.