Bitcoin miners sink millions into AI businesses, seeking billions in return

Austin — Core Scientific, a bitcoin miner, has been quietly diversifying into artificial intelligence for the past five years. This market requires significant computing power to train AI models and handle the associated workloads.

The move is no longer a secret.

Late Monday, Core Scientific announced a 12-year agreement with cloud provider CoreWeave to provide infrastructure for use cases such as machine learning. Core Scientific said the agreement, which builds on the two companies’ existing partnership, will generate more than $3.5 billion in revenue over the course of the contract. Core Scientific shares increased by approximately 30% on Tuesday morning.

CoreWeave, backed by Nvidia, rents out GPUs for training and running AI models. CoreWeave was valued at $19 billion during a funding round last month. Core Scientific will provide approximately 200 megawatts of infrastructure to CoreWeave’s operations.

Core Scientific, which came out of bankruptcy in January, has been mining a variety of digital assets since 2017. In 2019, the company began diversifying into other services.

“The best way to think about bitcoin mining facilities is that we are essentially power shells in the data center industry,” Core Scientific CEO Adam Sullivan told CNBC.

Sullivan took over as CEO while the company was still in the process of declaring bankruptcy due to the collapse of bitcoin in 2022. Since then, the former investment banker has settled debts with angry lenders and expanded the company’s non-bitcoin operations as it reentered the public market.

Though Core has increased by more than 40% since relisting earlier this year, its market capitalization of approximately $865 million is significantly lower than its valuation of $4.3 billion in July 2021.

Demand for AI compute and infrastructure skyrocketed after OpenAI unveiled ChatGPT in November 2022, triggering a rush of investment in AI models and startups. Meanwhile, Core Scientific and other miners such as Bit Digital, Hive, Hut 8, and TeraWulf have been looking to increase their revenue streams following the so-called bitcoin halving in April, which reduced rewards paid to bitcoin miners by 50%.

Many have retrofitted their massive facilities to better meet market demands.

“Bitcoin miners, who are often stationed in energy-secure and energy-intensive data centers, find these facilities ideal for AI operations as well,” said James Butterfill, head of research at digital asset firm CoinShares.

Butterfill claims that the overlap is resulting in a competition for rack space between bitcoin mining and AI activities. While AI operations can cost up to 20 times as much as bitcoin mining, they are more profitable, according to a CoinShares report.

“The introduction of AI activities leads to increased depreciation and amortization, which can enhance gross profit margins,” Butterfill stated.

According to CoinShares, AI accounts for 27% of Bit Digital’s revenue. AI accounts for 6% of Hut 8’s sales, while Hive’s data centers in Canada and Sweden account for 4% of its revenue.