Bitcoin miners invest millions in AI business, seeking billions

Core Scientific’s 104 megawatt Bitcoin mining data center in Marble, North Carolina

Carey McKelvey

AUSTIN – In 5 years, bitcoin miner Core science has quietly diversified from mining into artificial intelligence, a market that requires huge amounts of energy to handle the training of AI models and the massive workload that follows.

The move is no longer a secret.

On 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 deal, which expands on the existing partnership between the two companies, will add more than $3.5 billion in revenue over the life of the contract.

CoreWeave, powered by Nvidia, rents out graphics processing units (GPUs), needed to train and run AI models. CoreWeave is priced at 19 billion USD in a funding round last month. Core Scientific will provide approximately 200 megawatts of infrastructure for 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 the power supplies for the data center industry,” Adam Sullivan, CEO of Core Scientific, told CNBC. .

Sullivan jumped into the CEO role when the company was still on the brink of bankruptcy due to bitcoin’s collapse in 2022. Since then, the former investment banker has been settling debts with his lenders. angry loan and continues to strengthen the company’s non-bitcoin business. business as it reenters the mass market.

Bitcoin miners are turning to AI

Although Core is up more than 40% since relisting earlier this year, its market capitalization of about $865 million is still significantly lower than its current market cap. Its valuation was $4.3 billion as of July 2021.

Demand for AI computing and infrastructure surged after OpenAI announced ChatGPT in November 2022, creating a wave of investment in AI models and startups. Meanwhile, Core Scientific and other miners such as Bit Digital, Hive, Hut 8 and TeraWulf are looking to beef up their revenue streams after the so-called bitcoin halving in April cut it by 50%. rewards paid to bitcoin mining companies.

Many have retrofitted their huge facilities to meet market demands.

James Butterfill, head of research at digital assets firm CoinShares, said: “Bitcoin miners, often stationed in energy-intensive and energy-secure data centers, realize found these facilities to be ideal for AI activities as well.”

Butterfill said the overlap is leading to competition for space between bitcoin mining and AI operations. According to a report from CoinShares, although AI operations require 20 times more capital expenditure than bitcoin mining, they are more profitable.

“Introducing AI activities leads to increased depreciation and amortization, which can enhance gross margins,” Butterfill said.

According to CoinShares, Bit Digital derives 27% of its revenue from AI. Hut 8 generates 6% of its revenue from AI and Hive, which has data centers in Canada and Sweden, receives 4% of its revenue from these services.

Read more about technology and cryptocurrency from CNBC Pro

Hut 8 said in it first quarter earnings report that it purchased the first batch of 1,000 Nvidia GPUs and reached a customer agreement with a joint venture-backed AI cloud platform as part of its expansion into new, more profitable technologies.

Asher Genoot, CEO of Hut 8 said: “We have completed commercial agreements for our new AI vertical under the GPU-as-a-service model, including agreements with customers to provide fixed infrastructure payments plus revenue sharing.”

Genoot added that the company expects to start generating revenue in the second half of this year at an annual pace of about $20 million.

Digital bits There were 251 servers actively generating revenue from its first AI contract as of the end of April, and the company said it earned about $4.1 million in revenue from this activity that month.

Iris Energy expects to generate annual revenue of $14 million to $17 million from its AI cloud services. Core Scientific’s expanded agreement with CoreWeave is expected to generate annual revenue of $290 million.

Large-scale bitcoin miners are competing directly with AI companies for power: Marathon Digital CEO

“While we intend to remain one of the largest and most efficient bitcoin mining companies, we hope to have a diversified business model and more predictable cash flows,” Sullivan said. .

Bitcoin’s volatility has made mining a challenging undertaking.

Although bitcoin is now up more than 150% over the past year to around $69,000, the 2022 bear market has bankrupted many miners or forced them to shut down altogether.

The move to AI is complicated

Pivoting to AI is not as simple as reusing existing infrastructure and machinery, because the requirements of high-performance computing (HPC) data centers are different, as are the needs of the network. data.

“Besides transformers, substations, and some switching equipment, nearly all companies exploit existing infrastructure,” Needham analysts wrote in a May 30 report. will need to be bulldozed and built from the ground up to accommodate HPC.”

The devices used for bitcoin mining are called Application-Specific Integrated Circuits (ASIC). They are specifically built for cryptocurrency mining and cannot be used to do other things.

Needham estimates that HPC data centers have an investment cost of $8 million to $10 million per megawatt, not including GPUs, while bitcoin mining sites typically operate at $300,000 to $800,000 per megawatt. megawatts, excluding ASICs.

Core’s Sullivan said there is a lot of synergy between the two businesses.

“One of the most exciting parts about the bitcoin mining business is that we have access to a large amount of energy across the United States with access to fiber optic lines,” he said.

In addition to its partnership with CoreWeave, Core Scientific also announced that over the next three to four years, it is working to transition 500 megawatts of bitcoin mining infrastructure nationwide to HPC data centers.

Sullivan said the retrofit is manageable because the company owns and controls all of its data center infrastructure.

“There were components we had to buy to retrofit the HPC, but those were things we could easily get,” he said.

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Over the next one to two years, Needham analysts estimate that major publicly traded bitcoin miners are expected to double their electricity capacity, including plans to expand their businesses. mining and their HPC.

Clean energy is a popular choice because it is the cheapest source of energy in many markets. Miners at scale compete in a low-margin industry where their only variable cost is often energy, so they are incentivized to switch to the world’s cheapest energy sources. . ONE industry reports It is estimated that the bitcoin network is powered by 54.5% of its power from sustainable electricity sources.

The Electricity Research Institute estimates that data centers could account for up to 9% of the country’s total electricity consumption by 2030, up from about 4% in 2023. Harnessing nuclear energy is seen by many as the answer to this problem. meet that need.

TeraWulf supplies nuclear power to its mining sites and is looking to get into the machine learning space. To date, the company has two megawatts dedicated to HPC capacity, although it plans to transition its power infrastructure to AI and HPC.

OpenAI CEO Sam Altman told CNBC last year that he strongly believes in kernel when it comes to serving the needs of AI workloads.

“I don’t see a way for us to get there without going nuclear,” Altman said. “I mean, maybe we could get there with just solar and storage. But from my vantage point, I feel like this is the best and most likely way to get there.” there.”

CLOCK: Nvidia closed at another record high

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