Executive Summary / Key Takeaways

• Transformative AI Pivot Culminates in Merger: Core Scientific is undergoing a profound strategic shift from Bitcoin mining to high-density colocation for AI/HPC, a transition now culminating in a $9 billion all-stock acquisition by its key partner, CoreWeave, Inc. This merger is set to solidify Core Scientific's position as a critical infrastructure provider for the burgeoning AI industry.
• Foundational CoreWeave Partnership & Capital Efficiency: The relationship with CoreWeave has been foundational, with CoreWeave funding the vast majority of associated capital expenditures for 590 megawatts of HPC capacity. This unique structure has kept Core Scientific's balance sheet lean, enabling rapid expansion and a clear path to long-term value creation.
• Rapid HPC Capacity Expansion & Diversification: Core Scientific is aggressively expanding its HPC footprint, targeting 250 megawatts delivered by the end of 2025 and 590 megawatts by early 2027. The company aims to diversify its customer base beyond CoreWeave, with a pipeline including large enterprise customers seeking 50-100 megawatt deployments.
• Strong Operational Expertise & Technological Edge: Leveraging years of experience in high-power digital infrastructure, Core Scientific possesses proprietary thermodynamic solutions for passively-cooled, high-density facilities, delivering best-in-class uptime. This operational and technological expertise is a key differentiator in meeting the stringent demands of AI workloads.
• Improved Financial Stability & Valuation Re-rating Potential: Post-bankruptcy emergence, Core Scientific has significantly strengthened its balance sheet through debt restructuring and convertible note offerings. The strategic pivot to HPC, characterized by stable, long-term contracts, is expected to drive greater profitability and a re-rating of the company's valuation towards data center multiples.

The Genesis of a Digital Infrastructure Powerhouse: From Crypto to AI

Core Scientific, Inc. ($CORZ), founded in 2017, initially carved out a niche as a prominent player in digital asset mining, primarily focused on Bitcoin. The company developed purpose-built facilities and proprietary software solutions to support its extensive self-mining operations and provide hosting services for third-party miners. This early journey, however, was not without its trials, notably a Chapter 11 bankruptcy filing in December 2022. Yet, Core Scientific emerged successfully in January 2024, having restructured its debt and fortified its financial foundation. This period marked a pivotal inflection point, as the company embarked on a strategic transformation, pivoting from its Bitcoin-centric roots towards the burgeoning high-density colocation services market for Artificial Intelligence (AI) and High-Performance Computing (HPC) workloads.

The impetus for this strategic shift stems from a clear dislocation in the market: AI is driving an unprecedented demand for a new kind of infrastructure, purpose-built for high-performance, high-density workloads that traditional data centers struggle to accommodate. Core Scientific, with its existing high-power digital infrastructure and operational expertise, recognized this mismatch as a unique opportunity. The company has positioned itself as a pure-play infrastructure provider focused specifically on high-density colocation, aiming to capture a significant share of this rapidly expanding market.

In this evolving landscape, Core Scientific differentiates itself from both traditional data center providers and its Bitcoin mining peers. Unlike legacy data centers, Core Scientific's facilities are being engineered to support higher rack energy densities, a critical requirement for advanced AI technologies. Against direct Bitcoin mining competitors like Marathon Digital Holdings (MARA), Riot Blockchain (RIOT), Hut 8 Mining (HUT), and Bitfarms (BITF), Core Scientific's strategic pivot offers a more diversified and stable revenue stream, moving away from the sole reliance on volatile digital asset prices. While these mining peers focus on expanding hash rate and efficiency, Core Scientific is leveraging its operational know-how to build a high-margin, recurring revenue business in HPC.

A cornerstone of Core Scientific's competitive advantage lies in its proprietary technology and operational expertise. The company possesses unique knowledge in data center design principles and systems integration architectures, honed over years of operating complex digital asset mining facilities. Its proprietary thermodynamic solution, for instance, is designed to manage heat and airflow efficiently, delivering best-in-class uptime for high-density environments. This expertise extends to the installation, operation, optimization, and repair of digital mining equipment, a capability now being applied to the more demanding requirements of GPU-based HPC. Furthermore, the company's planned deployment of Block (SQ)'s new 3-nanometer ASIC chips in the second half of 2025, combined with proprietary firmware and energy management software, aims to further boost its Bitcoin mining fleet's efficiency and hash rate, demonstrating a commitment to leading innovation across both its business segments. This technological differentiation is not merely academic; it translates directly into the ability to deliver superior performance and reliability, forming a critical moat against competitors and enhancing its market positioning.

Operational Excellence and Strategic Expansion

The strategic pivot to HPC has been significantly catalyzed by Core Scientific's foundational partnership with CoreWeave, Inc., an AI hyperscaler. This relationship began in March 2024 with a series of contractual agreements that have rapidly expanded. By November 2024, CoreWeave had exercised options to fully contract the original 500 megawatts (MW) of HPC capacity, with a staggering total revenue potential of $8.7 billion over 12 years. This was further augmented by a $1.2 billion expansion at the Denton, Texas facility in February 2025, bringing the total contracted value with CoreWeave to over $10 billion, covering approximately 590 MW of critical IT load.

A key aspect of these CoreWeave contracts is their capital-efficient structure. CoreWeave funds virtually all of the capital investment on these deployments, significantly reducing Core Scientific's capital burden and keeping its balance sheet "leverage light." These are "take-or-pay fixed price contracts," meaning CoreWeave is contractually committed to paying for the delivered capacity regardless of utilization. This shared execution risk aligns both parties financially and operationally. For a recent 70 MW expansion at Denton, Core Scientific will fund $1.5 million per megawatt in capital expenditures, a deviation from prior agreements, but will benefit from full rental payments during the first two years without a CapEx credit. The Denton facility itself is a cornerstone, expected to host one of the largest GPU clusters globally, with the first 8 MW delivered in May 2025 and an additional 40 MW by the end of Q2 2025.

Core Scientific is aggressively pursuing capacity expansion, targeting approximately 300 MW of billable capacity across its existing sites by the end of 2027, and an additional 400 MW through new site development over the next three years. This organic growth is complemented by a strategic M&A approach, focusing on acquiring stabilized data center assets or "book-but-not-built" projects with strategic customer contracts. The company's site selection strategy prioritizes securing the right power at the right cost in low-latency locations, often identifying "more esoteric" sites outside traditional broker channels.

A critical strategic imperative is customer diversification, with a stated goal for CoreWeave to represent less than 50% of billable capacity by the end of 2028. The company's sales pipeline is expanding, including a healthy mix of hyperscale and large enterprise customers. Management notes "emerging demand" from large enterprises, with opportunities ranging from 50 MW to 100 MW, offering attractive return profiles and faster contract timelines compared to hyperscalers. Core Scientific's proven track record and secured power agreements are crucial differentiators in a market seeing an influx of new entrants making ambitious capacity promises without tangible backing.

Financial Performance: A Transition in Progress

Core Scientific's financial performance in Q2 2025 reflects its ongoing strategic transition. Total revenue decreased by 44% year-over-year to $78.6 million. This decline was primarily driven by the Digital Asset Self-Mining segment, where revenue fell 44% to $62.4 million. The decrease in self-mining revenue was largely due to a 62% reduction in Bitcoin mined (634 BTC in Q2 2025 vs. 1,680 BTC in Q2 2024), attributed to a net decrease of 12,100 deployed mining units and the strategic reallocation of infrastructure to colocation. A 9% decrease in self-mining hash rate and a 39% increase in network difficulty further impacted mining output, though a 50% increase in Bitcoin's average price provided a partial offset. The Digital Asset Hosted Mining segment also saw a significant 77% revenue decrease to $5.6 million, as the company continues to sunset these contracts to free up capacity for HPC.

In contrast, the nascent Colocation segment demonstrated robust growth, with revenue increasing by $5.0 million year-over-year to $10.6 million in Q2 2025. While the initial GAAP gross margin for the Austin data center was 11% due to accelerated lease expenses, management anticipates margins to improve to between 35% and 40% (excluding power pass-through) by the first half of 2025. For Q4 2024, the HPC hosting segment reported a non-GAAP cash gross margin of 16%.

Overall cost of revenue decreased by 28% in Q2 2025, primarily due to an $18.5 million reduction in power costs (lower rates and usage) and a $10.7 million decrease in depreciation as more miners became fully depreciated. However, selling, general, and administrative expenses surged 81% to $56.9 million, largely due to a $12.3 million increase in stock-based compensation and a $7.0 million increase in Colocation segment site startup costs. Non-operating expenses also increased significantly, driven by a $113.9 million increase in the fair value of warrant and contingent value rights, reflecting the company's stock price appreciation.

Core Scientific's liquidity position remains strong, with approximately $780 million in cash, cash equivalents, and Bitcoin as of the end of Q1 2025. The company has made substantial progress in strengthening its balance sheet post-bankruptcy, reducing total debt by $270 million in 2024 and completing convertible note offerings totaling $1.085 billion at attractive rates (including a 0% interest note). During Q2 2025, the company repaid five higher-interest debt facilities totaling $26.6 million. As of June 30, 2025, Core Scientific had contractual commitments of $1.71 billion for HPC capital expenditures, with $1.26 billion passed through to the customer and $427.9 million funded as prepaid license fees. This capital-efficient model, particularly with CoreWeave funding the majority of CapEx, is crucial for managing growth in a high-CapEx industry.

The CoreWeave Merger: A Transformative Leap

On July 7, 2025, Core Scientific announced a definitive agreement to be acquired by CoreWeave, Inc. in an all-stock transaction. Under the terms, Core Scientific stockholders will receive 0.1235 newly issued shares of CoreWeave Class A common stock for each share of Core Scientific common stock. This deal, valued at approximately $9 billion, implies a $20.40 per-share valuation for Core Scientific, representing a 66% premium to its closing stock price before deal talks were reported. The transaction is expected to close in the fourth quarter of 2025, pending regulatory and shareholder approval.

This merger represents the ultimate culmination of Core Scientific's strategic pivot to AI/HPC colocation. For CoreWeave, the acquisition eliminates $10 billion in future lease obligations and grants direct ownership of 1.3 gigawatts of gross capacity across Core Scientific's U.S. data center footprint, with another gigawatt available for future growth. The strategic rationale is clear: vertical integration to secure cheap, scalable power and infrastructure for AI. CoreWeave CEO Mike Intrator noted that the cost of converting cryptocurrency sites is less than setting up new AI data centers, and the combined entity can pursue investments from infrastructure-oriented vehicles at a potentially lower cost of capital.

However, the market's initial reaction saw Core Scientific's shares slide, and some major shareholders, like Two Seas Capital, have announced their intention to vote against the proposed sale, citing concerns that the offer "materially undervalues Core Scientific and unnecessarily exposes shareholders to substantial economic risk." This pushback highlights the tension between the strategic long-term benefits of vertical integration and the immediate valuation implications for Core Scientific shareholders. Post-merger, Core Scientific shareholders will own less than 10% of the combined company, and CoreWeave's multi-class stock structure will concentrate voting power with its co-founders, a factor that could influence governance and the interests of other stockholders.

Outlook, Guidance, and the Road Ahead

Core Scientific's outlook is firmly anchored in its HPC growth trajectory and the impending merger with CoreWeave. The company is confident in delivering 250 megawatts of HPC capacity to CoreWeave by the end of 2025 (including Austin) and the full 590 megawatts by early 2027. While some Ready-for-Service (RFS) dates have shifted later in 2025 due to weather, construction, and design enhancements, management views these adjustments as necessary to optimize GPU performance and ensure a more robust infrastructure. The company has "line of sight to total HPC hosting capacity of more than 1-gigawatt of critical IT load by the end of 2027" through organic expansion at existing sites (300 MW) and new site development (400 MW).

On the Bitcoin mining front, Core Scientific will continue to profitably mine digital assets until alternative high-density colocation opportunities are identified. The planned deployment of Block's new 3-nanometer ASIC chips in the second half of 2025 is expected to refresh and expand the self-mining fleet, boosting hash rate and efficiency. These chips, integrated with Core Scientific's proprietary firmware and software, will enhance operational control and profitability. The company has ceased publishing monthly Bitcoin production reports, shifting focus to HPC construction updates, reflecting its strategic priority. For 2025, Core Scientific models a statutory effective tax rate of 22%, with over $380 million in net operating loss carryforwards expected to reduce future cash taxes.

The merger with CoreWeave is expected to accelerate Core Scientific's transformation, providing a lower cost of capital and a structurally higher valuation framework. The combined entity aims for a net debt to adjusted EBITDA leverage ratio of approximately 4 times, aligning with data center industry peers. This strategic move, while facing some shareholder scrutiny, is designed to leverage Core Scientific's operational assets and expertise within a larger, vertically integrated AI infrastructure player.

Key Risks and Challenges

Despite the compelling growth narrative, several risks and challenges warrant investor attention. The completion of the CoreWeave merger is contingent on regulatory and shareholder approvals, which could delay or prevent the transaction, leading to negative market reactions and significant costs. Post-merger, integration challenges could hinder the realization of anticipated benefits and adversely affect the combined company's stock price. Shareholder pushback on the current valuation terms also introduces uncertainty.

Operationally, the extension into the Colocation segment involves inherent risks related to facility construction, supply chain bottlenecks (e.g., for switchboards, static transfer switches, and generators), and the risk of nonperformance by its primary customer, CoreWeave. While Core Scientific has developed contingency plans for supply chain issues, delays could still impact delivery timelines. The company's Texas operations are subject to Senate Bill 6.00, which imposes binding operational and interconnection requirements on large electric loads, potentially affecting operational flexibility and costs.

Furthermore, the Digital Asset Self-Mining segment remains exposed to the extreme volatility of Bitcoin prices, network hash rate increases, and the impact of future halvings, which can significantly affect profitability. While the company aims to hedge Bitcoin exposure, this volatility remains a factor. New U.S. tariffs on imported goods could also lead to price inflation and delivery delays for critical equipment, potentially impacting CapEx for new builds and lease rates. Finally, the competitive landscape for high-density colocation is intensifying, with new market entrants making ambitious capacity promises, requiring Core Scientific to continuously demonstrate its proven track record and secured power agreements to attract and retain blue-chip clients.

Conclusion

Core Scientific stands at the precipice of a profound transformation, evolving from a Bitcoin mining specialist into a pivotal player in the high-density AI/HPC colocation market. Its journey, marked by a successful emergence from bankruptcy and a rapid strategic pivot, is now set to culminate in a $9 billion all-stock merger with CoreWeave. This union is a testament to Core Scientific's operational prowess and its unique position in addressing the insatiable demand for AI infrastructure, leveraging its proprietary technology and extensive power assets.

The core investment thesis hinges on the successful integration with CoreWeave, the continued execution of its ambitious capacity expansion plans, and its ability to diversify its customer base beyond its anchor tenant. While the transition presents financial and operational challenges, including managing supply chain risks and shareholder sentiment regarding the merger's valuation, the long-term outlook is compelling. Core Scientific's shift towards stable, high-margin colocation contracts, coupled with its technological edge in high-density compute, positions it for a re-rating in valuation and sustained growth within the rapidly expanding AI infrastructure landscape. Investors should closely monitor the merger's progression, the pace of HPC capacity delivery, and the company's success in attracting new enterprise and hyperscale clients to fully realize its potential as a leading digital infrastructure powerhouse.