Executive Summary / Key Takeaways

• Core Scientific is strategically transforming from a Bitcoin mining-centric entity into a high-density colocation provider for AI and HPC workloads, leveraging its extensive digital infrastructure and operational expertise.
• The company's foundational contracts with CoreWeave, which include 570 megawatts of billable capacity, are crucial for this pivot, offering long-term, predictable revenue streams with significant capital expenditure funding from CoreWeave.
• Despite the recent termination of its proposed merger with CoreWeave, Core Scientific is committed to an independent growth strategy focused on customer diversification, organic capacity expansion (targeting over 700 MW by 2027), and strategic M&A.
• Financial performance in the first nine months of 2025 reflects the ongoing transition, with declining Bitcoin mining revenue offset by significant growth in colocation, while the balance sheet has strengthened post-bankruptcy.
• Key factors for investors include the successful execution of HPC build-outs, diversification of the customer base beyond CoreWeave, and the effective optimization of its remaining Bitcoin mining operations with new ASIC technology.

A Strategic Pivot in the Digital Infrastructure Landscape

Core Scientific, Inc. (NASDAQ:CORZ), established in 2017, has historically been a prominent player in digital asset mining and hosting services. However, the company is undergoing a profound strategic transformation, repositioning itself as a leader in high-density colocation services tailored for the burgeoning Artificial Intelligence (AI) and High-Performance Computing (HPC) markets. This pivot is a direct response to a significant industry shift: AI is driving unprecedented demand for specialized, high-density infrastructure that traditional data center providers often struggle to supply. Core Scientific identifies a "clear dislocation in the market today," positioning itself as a pure-play public infrastructure company focused specifically on this high-density niche.

The company's journey has been marked by strategic responses to evolving market dynamics. Following its emergence from Chapter 11 bankruptcy in early 2024, Core Scientific swiftly moved to strengthen its financial foundation, including a $460 million convertible note offering in August 2024 and a $625 million 0% convertible note offering in December 2024. These actions significantly improved its balance sheet, providing the necessary liquidity to execute its ambitious growth plans. A pivotal moment in this transformation was the establishment of contractual agreements with CoreWeave, Inc., a leading cloud-based services provider for AI and HPC workloads, beginning in March 2024. These agreements, which now encompass 570 megawatts (MW) of billable capacity, are central to Core Scientific's strategy, designed to provide stable, long-term revenue.

Technological Edge and Operational Prowess

Core Scientific's competitive advantage is deeply rooted in its specialized technological capabilities and extensive operational expertise. The company has developed a proprietary thermodynamic solution for its passively-cooled digital asset mining data centers. This technology efficiently manages heat and airflow, delivering best-in-class uptime and increasing mining rewards. This design philosophy translates directly to its HPC initiatives, enabling the deployment of higher rack energy densities than typically found in legacy data centers, a critical requirement for power-intensive AI/HPC workloads. This capability allows Core Scientific to achieve "efficiency at scale" in its infrastructure deployments.

The company's research and development efforts extend to next-generation hardware. Core Scientific has an agreement with Block (SQ) to procure 15 exahash of their new 3-nanometer (nm) ASIC chips, slated for deployment in the second half of 2025. These chips are designed for an air-cooled form factor, which will allow for maximized production even at high temperatures without requiring significant infrastructure overhauls in existing Bitcoin mining facilities. When combined with Core Scientific's proprietary firmware, fleet management, and energy management software, these new chips are expected to significantly improve operating efficiency and profitability in its Bitcoin mining segment, enabling dynamic responses to changes in hash price and power costs. Furthermore, Core Scientific's team has been integral in designing infrastructure for the newest generation of GPUs, such as the GB200 and GB300, incorporating necessary incremental design changes. This deep involvement in cutting-edge hardware requirements provides a unique "thought leadership" position in discussions with hyperscalers and Neo cloud providers. The company's extensive experience, having operated over 700,000 machines from more than 16 different manufacturers, has cultivated a repair center that would be among the largest in the country if it were a standalone business, underscoring its unparalleled operational insight.

Financial Performance Reflecting a Transformative Period

Core Scientific's financial results for the nine months ended September 30, 2025, illustrate the ongoing strategic pivot. Total revenue decreased by 42% year-over-year to $239.3 million, primarily driven by a significant decline in its Digital Asset Self-Mining and Hosted Mining segments. Self-mining revenue fell 43% to $187.0 million, impacted by a 67% decrease in Bitcoin mined (due to the strategic shift to colocation and the April 2024 halving) and a 48% increase in network difficulty. This was partially offset by a 70% increase in the average price of Bitcoin to $102,198. The Digital Asset Hosted Mining segment saw an even steeper decline, with revenue dropping 74% to $18.1 million, as the company actively sunsets these contracts to prioritize colocation.

In stark contrast, the Colocation segment demonstrated robust growth, with revenue surging 115% year-over-year to $34.1 million for the nine months ended September 30, 2025. This growth was primarily fueled by the completion of data halls at the Denton, Texas data center and the initial capacity brought online at the Marble, North Carolina data center. Gross profit for the Colocation segment increased to $5.5 million, with a gross margin of 16%, reflecting the early stages of ramp-up. The company anticipates 75% to 80% cash gross profit margins on capacity converted at existing sites to HPC.

Overall, Core Scientific reported a net loss of $502.8 million for the nine months ended September 30, 2025, a substantial improvement from the $1.05 billion net loss in the prior-year period. Adjusted EBITDA for the same period was $13.0 million. The company's balance sheet shows a strong liquidity position with $453.4 million in cash and cash equivalents as of September 30, 2025. This liquidity is crucial for funding its strategic initiatives, especially given its contractual commitments of approximately $1.24 billion for high-density colocation conversions, a significant portion of which is customer-funded.

Competitive Landscape and Strategic Positioning

Core Scientific operates in a highly competitive and rapidly evolving digital infrastructure market. In Bitcoin mining, it faces intense competition from large-scale industrial miners, including those supported by sovereign entities. While Core Scientific has maintained a competitive hash rate capacity, its strategic focus is shifting.

In the high-density colocation market, Core Scientific competes with established data center REITs (e.g., Equinix (EQIX), Digital Realty (DLR)), developers, hyperscalers, and other Bitcoin miners with suitable capacity. However, Core Scientific believes it holds a unique position due to the "clear dislocation" in the market, where traditional providers struggle to meet the extreme density requirements of AI/HPC. The company's ability to convert existing Bitcoin mining infrastructure into high-density colocation facilities is a key differentiator, leveraging its operational expertise in high-power environments.

Core Scientific's strategic approach involves targeting both hyperscale cloud providers and large enterprise customers. While hyperscale demand remains strong, large enterprises are emerging as a compelling segment, with demand for 50-100 MW deployments offering attractive return profiles and potentially serving as anchor tenants for new sites. The company's "proven track record and secured power agreements set us apart" from new market entrants who often make ambitious capacity promises without tangible backing. Core Scientific also actively seeks "unique deals" in site selection, focusing on non-brokered brownfield and greenfield opportunities, leveraging its long-standing relationships with utilities and local governments. This allows it to acquire sites that are less expensive but highly attractive for high-density compute.

Comparing Core Scientific to its peers like Riot Blockchain (RIOT), Marathon Digital Holdings (MARA), Hut 8 Mining (HUT), and Bitfarms (BITF), Core Scientific distinguishes itself through its emphasis on software integration and hosting customization. While competitors may lead in pure mining scale or energy-efficient practices, Core Scientific's proprietary platforms for infrastructure management and security technologies offer a qualitative edge in client integration and service reliability. Its post-bankruptcy financial recovery, while showing progress, indicates a need to further strengthen financial resilience and operational scale to match the growth rates and profitability trends of some of its more established mining peers.

Outlook and Growth Trajectory

Core Scientific's outlook is firmly centered on its HPC transformation. The company aims to deliver 250 MW of billable capacity by the end of 2025, with the full 590 MW of contracted CoreWeave capacity expected to be online by early 2027. This includes significant progress at the Denton, Texas facility, which is poised to host one of North America's largest GPU clusters. While a proposed merger with CoreWeave was terminated due to shareholder opposition, the underlying commercial contracts with CoreWeave remain foundational, with CoreWeave funding virtually all associated capital expenditures, thereby keeping Core Scientific's balance sheet agile.

Looking beyond its current CoreWeave commitments, Core Scientific plans aggressive capacity expansion. It is confident in adding approximately 300 MW of billable capacity across its existing sites by the end of 2027, leveraging its strong utility relationships. Furthermore, the company targets an additional 400 MW of buildable capacity through new site development over the next three years, pursuing strategic M&A opportunities that align with its core competencies. The overarching goal is to diversify its customer base, aiming for CoreWeave to represent less than 50% of its billable capacity by the end of 2028.

For its Bitcoin mining segment, Core Scientific will continue to optimize operations, with the new Block ASIC chips expected in the second half of 2025 to enhance efficiency and hash rate. The company has ceased publishing monthly Bitcoin production reports, shifting its communication focus to HPC construction progress, reflecting its strategic priority. The company models a statutory effective tax rate of 22% in 2025, with over $380 million in net operating loss carryforwards to reduce future cash taxes.

Risks and Considerations

Despite the compelling growth narrative, Core Scientific faces several pertinent risks. The expansion into high-density colocation involves significant challenges related to facility construction, supply chain constraints (e.g., switchboards, static transfer switches, generators), and the potential for non-performance by its major customer, CoreWeave. Global tariffs, particularly those announced in February 2025, could lead to material price inflation and delivery delays for critical equipment.

The Bitcoin mining business remains exposed to the volatile spot price of Bitcoin, increases in network hash rate and difficulty, and regulatory changes (such as Texas Senate Bill 6, which imposes operational requirements and potential load curtailment). While the company is diversifying, its current customer concentration with CoreWeave presents a risk. The influx of new market entrants making ambitious capacity promises without tangible power agreements also creates market scrutiny, though Core Scientific's established track record helps mitigate this. The company's ability to manage these operational, market, and competitive risks will be crucial for realizing its long-term strategic objectives.

Conclusion

Core Scientific is at a pivotal juncture, actively transforming its business model to capitalize on the immense demand for AI and HPC infrastructure. Its strategic shift, underpinned by robust contracts with CoreWeave and a clear roadmap for organic and inorganic expansion, positions it as a significant player in the high-density colocation market. While the termination of the CoreWeave merger means an independent path forward, the company's strengthened balance sheet, technological differentiators, and operational expertise provide a solid foundation. The successful execution of its HPC build-outs, coupled with effective customer diversification and optimized Bitcoin mining operations, will be key determinants of its ability to unlock substantial shareholder value and achieve its vision of becoming a leading digital infrastructure platform.