CoreWeave and Core Scientific - Reading the Tea Leaves
Unprecedented Demand
A massive wave of capital expenditure has hit the hardware industry as the demand for high preformance computing mounts. New data centers and investments in the necessary infrastructure required to power AI workloads have changed the macro-economic picture for the world, transforming the tech sector. The demand for high power, fast processing hardware is at its highest level in modern history. Markets are forcing companies to grapple with the breakneck pace of hardware innovation and evolving interdependencies powering an intelligence arms race. While many firms compete in the HPC business, CoreWeave and Core Scientific offer an insightful look into the volatile market for compute.
Trading one frothy industry for another, both companies pivoted from cryptocurrency PoW mining to HPC; CoreWeave by choice, while Core Scientific was forced to re-organize post bankruptcy in 2022. This wasn’t coincidental. Both transitions signal a wider shift in tech: harnessing fungible assets and cutting edge technologies to cash in on speculation. By restructuring their businesses, CoreWeave and Core Scientific have exposed the acute challenges of securing resources for high-performance hardware. While one might assume their data center experience primed them for the transition to HPC, the truth is only some of their infrastructure and knowledge is transferable to running AI workloads.
On its face, the reasoning behind the transition may seem obvious. Billions of dollars is being invested in the hardware and utilities used by neo-cloud providers to support the largest companies in the world. The influx of capital is the main reason, but the economics of cryptocurrency mining has become increasingly unfavorable for data center operators, expediting the transition. CoreWeave recognized this early, when their original fleet of GPUs used to mine Ethereum were rendered useless when the blockchain’s consensus mechanism switched from Proof of Work to Proof of Stake. This eliminated the block rewards and primary cash flow for CoreWeave, fueling the early transition to HPC. Core Scientific was forced to restructure as they primarily used their ASIC hardware to mine Bitcoin, which still uses Proof of Work as its consensus mechanism. In 2022 the cryptocurrency market entered a cyclical depression, causing the cost of mining Bitcoin to drastically exceed the block rewards paid to miners like Core Scientific. This coupled with the bankruptcy of Celsius Network – one of Core Scientific’s largest customers – contributed to Core Scientific’s bankruptcy in 2022. Post bankruptcy Core Scientific still mines Bitcoin, but their focus is shifting to HPC services. CoreWeave is now Core Scientific’s largest customer and is the larger company. More on that to follow.
Justifying the Transition
The capex required to build neo-cloud infrastructure from the ground up is on the order of 10X-15X what it would take to stand up a similarly scaled mining operation. Even with these additional expenses, there are some very compelling reasons to pivot from mining to HPC:
- Revenue Quality
- Crypto mining operations have two revenue sources: Proceeds from block rewards and energy arbitrage. These are very volatile revenue sources that require a lot of financial engineering and speculation.
- Neo-clouds have one primary revenue source: Renting HPC capacity to clients, usually in strategic partnerships over a number of years.
- Commodifiable Resources
- Crypto miners are positioned preferably for the transition to HPC because they have the base commodities necessary to support neo-cloud infrastructure. They have the power permitting, facilities and municipal approvals required to operate a data center.
- Excess Demand
- The projected demand for ALL cloud services is expected to increase. This includes mid-level enterprise demand that can cushion the blow of decreased AI related demand or hardware lifecycling.
- Productivity
- Crypto mining provides settlement insurance, which is fancy talk for trustlessly verifying transactions for third parties on the Bitcoin network. The productive use cases for this technology are dubious. Blockchain technology has failed to capture much of the finance industry, and the Bitcoin blockchain is antiquated compared to its contemporary alternatives.
- Cloud service providers offer a utility to customers rather than a security assurance. Neo-clouds offer a laboratory for innovation, accelerating AI research and running AI models. Hyperscalers provide stable infrastructure for running the digital economy (Never ask a blockchain developer where they host their front end).
While these factors are seemingly apparent, demand for HPC will be inelastic in the short term and elastic in the long term. Crypto mining and the neo-cloud business are speculative. What’s important to remember is the distinction: Cloud services are driving productivity growth and running the digital economy. Cryptocurrencies and blockchain tech are still searching for an addressable market (outside of illicit activity and money laundering) more than a decade after the first wave of institutional investment.
Capitalizing on Existing Resources
Neo-cloud infrastructure can be split into three layers:
Layer 1: Fungible infrastructure and commodities: Land, utility access and real estate. Layer 2: Heat management and power density: Liquid cooling equipment, cabling, generators and PDUs. Layer 3: Hardware: Rackspace, nodes, networking gear and orchestration.
Firms switching from Bitcoin mining to Neo-cloud services can capitalize on layer 1. Layer 1 contains fungible resources that can – for the most part – be transferred, re-permitted or transformed to meet HPC standards. Layer 2 and 3 require total overhauls, as the density, networking and power requirements are more demanding for HPC workloads.
Core Scientific is making the strategic pivot by adding to their existing Layer 1 resources. They’ve recognized the demand for land and power creates a bottleneck for new entrants. The approval process for building a data center has become a major blocker preventing new construction. Many constituents do not want data centers anywhere near their property. The resource constraints, decrease in property values and noise pollution put pressure on the immediate area surrounding a data center. For these reasons, the areas ripe for new data centers are finite and the demand spurred by record investment is continuously added to a growing back-log.
Restructuring
Core Scientific is not alone in this transition. Mining companies like Hut 8, Applied Digital and TeraWulf are making similar moves, looking to diversify or completely change their revenue sources. This does not reflect well on the cryptocurrency industry. The Bitcoin protocol has mechanisms to balance the difficulty of mining when mining becomes unprofitable, but the large mining operations stand the most to lose when demand dies down. Market fluctuations can bankrupt a company, Core Scientific being a prominent example. On the other hand, switching to HPC provides investment and a stable revenue source. GPUs are susceptible to Moore's Law , but gradually lifecycling hardware over a number of years is preferable to volatility in crypto markets rendering all of your Bitcoin ASICs worthless.
CoreWeave has now made two attempts to acquire Core Scientific. In the summer of 2024 Core Scientific’s board rejected the sale stating it “significantly undervalued” the company. One year later in July 2025 the acquisition was attempted again by CoreWeave. Interestingly, the sale was rejected by shareholders after being approved by Core Scientific’s board. This hiccup in corporate governance was spearheaded by Two Seas Capital; one of the largest shareholders. They managed to convince many shareholders and more importantly the two large proxy voting firms (who control voting decisions for asset managers like Vanguard, Black Rock etc.) to strike down the deal (who control voting decisions for asset managers like Vanguard, Black Rock etc.) to strike down the deal. CoreWeave still remains Core Scientific’s largest customer. . CoreWeave still remains Core Scientific’s largest customer.
This turbulent relationship that CoreWeave and Core Scientific share is emblematic of a larger trend pushing firms to reconfigure their infrastructure and allocate foundational resources like land and power effectively.