Crypto miners are harnessing their advanced equipment and low-cost energy for the burgeoning artificial intelligence sector. As the demand for computational power soars, these miners are uniquely positioned to profit from the AI boom.

By Nina Bambysheva, Forbes Staff

Energy has become the hot commodity in the artificial intelligence world. Take cloud computing provider CoreWeave, which earlier this month inked a $3.5 billion deal with Core Scientific. The agreement involves CoreWeave paying $290 million annually over 12 years for the Austin-based bitcoin miner’s data centers to host AI-related computing hardware. CoreWeave will also cover all capital expenditures.

The deal was so good that Core Scientific’s stock doubled to $10 in early June, leading some observers to view the company as the new “picks and shovels” play for AI. On June 26, CoreWeave announced a second contract, this one projected to bring Core Scientific $1.2 billion in revenue in the coming years. Core Scientific emerged from bankruptcy in January and is one of the largest bitcoin miners in North America.

The soaring demand for heavy-duty computer capacity, driven by AI applications such as ChatGPT—its queries require 10 times the electricity of traditional Google searches—is putting a premium on companies like Core Scientific that have access to cheap power in states such as Texas and North Dakota and agreements to tap more energy from elsewhere. Having sufficient power available now is vital when you consider that building high-performance computing (HPC) data centers from scratch typically takes 3-5 years, with current wait times for electrical-grid connections stretching up to six, according to the Lawrence Berkeley National Laboratory research center.

Adam Sullivan, CEO of Core Scientific

Courtesy of Core Scientific

“The demand is insatiable,” says Adam Sullivan, Core Scientific’s CEO. “If we just execute on what is within our current contracted power today, we’d be a top 10 data center company in the United States hosting a very significant portion of AI that’s done in the United States over the coming years. We’ve been working very closely with Nvidia and a number of different partners on the development and design of what’s required to operate these chips.”

Since Core Scientific’s announcement of the first CoreWeave contract on June 3, the aggregate market value of 14 U.S.-listed bitcoin miners surged by 22%, according to research by JPMorgan, a stark contrast to the 12% decline in bitcoin and a 4% rise in the S&P 500.

The 14 miners control about 5 gigawatts of power and can spare 3.6 gigawatts of that for HPC, a June 24 research report by JPMorgan indicates. They also have purchase agreements for an additional 4.5 gigawatts from new power plants in various stages of construction and permitting.

That new energy is enough to support about 3.4 million households for a year, and it could come in handy. Driven by the AI boom, data centers’ energy demand could surge to 9% of U.S. power generation by 2030, according to the Electric Power Research Institute. This projected increase is more than double the current usage.

But the miners cannot easily repurpose their excess electric capacity for AI. “Near term, power is extremely hard to find in large quantities, and that’s the big asset a lot of the U.S. bitcoin miners have right now, but those power contracts are valuable if they have the other pieces that go along with it, primarily fiber connectivity,” says Wes Cummins, CEO of data center developer Applied Digital. Fiber-optic cabling is crucial in high-performance computing because it is what enables high-speed data transfers.

Kevin Dede, an analyst at H.C. Wainwright, notes, “Bitcoin purists will push back and say, ‘No, you can’t host AI machines in a bitcoin mining data center.’ Okay, I get it, you can’t. You need cleaner air and better cooling.” But smaller AI players that may not have an appetite for quite the same computing and power provided by hyperscalers—companies with massive data centers and cloud infrastructure such as Amazon’s AWS, Microsoft Azure and Google Cloud—could better integrate with the level of service range bitcoin miners are accustomed to delivering, which may ultimately lead to a bitcoin mining/HPC data center hybrid, he adds.

There is evidence that investors agree.

“Listed bitcoin mining stocks have re-rated during the past three weeks as the value of the miners’ power assets has come to the fore,” wrote Mark Palmer, an analyst at investment banking firm Benchmark, in a June 21 research note. “The average enterprise value/revenue multiple of a selected group of listed miners, including IREN, TeraWulf and BitDigital, is now at 7.8x, up from 5.2x two months ago.”

This is timely given the latest halving of the reward for adding a block to the Bitcoin blockchain. The reduction of the payment to 3.125 bitcoin has resulted in mining earnings reaching historic lows. In addition, the 10 miners that we found to be considering AI projects were all unprofitable last year, with bitcoin slowly recovering from the effects of the 2022 crypto winter and trading below the cost of mining it.

While Core Scientific is in the spotlight, several other miners have also been adjusting their operations to capitalize on the AI wave:

IREN

Formerly known as Iris Energy, IREN was one of the earliest companies to recognize the opportunity. JPMorgan calculates it is best positioned to take advantage of the HPC/AI demand, based on its track record of building high-quality data centers on time. The company also recently purchased 816 Nvidia H100 GPUs— arguably the most powerful chips for AI. “Outside of Core Scientific, IREN and maybe Hut 8, we haven’t really seen that level of materialized revenue coming from the AI business,” says Mike Colonnese, another analyst at H.C. Wainwright.

HUT 8

The Miami-based bitcoin miner announced a $150 million investment from Coatue Management, which has also backed CoreWeave, to build AI-related infrastructure. Coatue will buy a five-year note, which the company can extend for up to three years. The debt will pay 8%, and Coatue can convert it into stock, initially at $16.395 a share. That was a 45% premium when the deal was announced, but Hut 8 is now trading at $14.99.

Asher Genoot, CEO of Hut 8

Courtesy of Hut 8

“We want to work with partners that have scale or will be there for a long period of time for us to grow and continue building with, well-known names within the broader ecosystem and the AI sector, and we are in conversations with many of these counterparties,” says Asher Genoot, CEO of Hut 8. The key part of the equation is not only which companies will get an opportunity to address this market, but which companies will have the ability to deliver, and Hut 8 is one of them, he claims.

“Hut 8 has demonstrated its ability to stand up greenfield sites for energy assets and data centers relatively quickly and inexpensively,” agrees Benchmark’s Palmer. He rates Hut’s stock a buy with a $17 price target.

APPLIED DIGITAL

One of the first miners to pivot to building HPC data centers, Applied Digital recently signed a letter of intent with an unnamed U.S. hyperscale computing provider for a lease of 400 megawatts. The company’s Jamestown, North Dakota, facility is an interesting example of an attempt to balance mining and HPC efforts, according to H.C. Wainwright’s Dede—what’s becoming known as a mullet data center. Similar to the hairstyle, this kind of facility combines high-performance computing operations up front and bitcoin mining operations when there’s excess power capacity.

“​​I think people are very focused on power right now, but there’s a lot of other pieces that are very important if you want to transition your business from bitcoin mining to HPC,” says CEO Cummins, pointing out at wait times for key electrical gear of up to more than 2.5 years and competition for employees that has experience with large-scale data centers. “We spent a lot of time on this already. We’ve worked through the supply chain issues, we’ve picked up the experts. We really see ourselves as an HPC infrastructure company in the future.”

John Todaro, an analyst at Needham, named Applied Digital its top pick for HPC/AI while also highlighting IREN, Core Scientific, TeraWulf, Bitdeer, Hut 8, Bit Digital and HIVE Digital Technologies.

Bitcoin Miners Go AI

For the more pure plays, like Riot, CleanSpark and Marathon Digital Holdings, the three largest U.S. bitcoin miners by market capitalization, traditional crypto motivations remain strong. Bitcoin is near all-time highs, and supports like rising macro and political uncertainty are unlikely to fade soon.

“I think the optimal use of our resources is to focus on bitcoin mining and helping share the positive relationship to energy. Not only does it help stabilize the power grid, but it’s the future of money and there is a finite amount that will ever be mined. Some of our data centers could support HPC but we believe we are making a more positive impact and achieving success under our current strategy,” said Zach Bradford, CEO of CleanSpark, in a statement to Forbes.

Marathon has actually expanded its mining activities by adding kaspa (KAS), a proof-of-work digital currency, to its portfolio. “By mining kaspa, we are able to create a stream of revenue that is diversified from bitcoin, and that is directly tied to our core competencies in digital asset compute,” said Adam Swick, Marathon’s chief growth officer, in a statement shared on the company’s website. In March Forbes included Kaspa in its list of zombie blockchains because of little discernable use.

CleanSpark earlier this month announced it had added five mining sites in Georgia, worth $25.8 million, and on June 27 said it agreed to buy peer Griid Infrastructure in an all-stock deal valued at $155 million. Riot, meanwhile, is trying to take over rival Bitfarms via a proxy battle.

Investors in pure play mining should be a little bit more cautious, warns the analyst known on X as pennyether. “They’re sort of already pricing in a rally in bitcoin, but if it doesn’t happen, say we held to $60,000 per bitcoin for another year, I have to imagine that a lot of the mining stocks are going to take a substantial haircut.”

Sure, it’s hard to break into a new, highly complex industry, writes Colin Harper, head of content and research at bitcoin mining services firm Luxor Technologies, and “it becomes even more difficult when you consider that miners will be competing with some of the largest, most heavily capitalized tech companies on the planet.”

It could cost upward of $10 million per megawatt to build out AI data center infrastructure, while bitcoin mining sites’ megawatt cost between $300,000 to $500,000, according to H.C. Wainwright’s Colonnese. “The market has typically responded well to anything with AI but these are very capex-intensive builds, and you have to get them right,” he says.

Still, a shift to AI operations for those with available infrastructure and energy capacity offers potentially compelling benefits. By replacing the volatility of bitcoin with more stable revenue from AI computing, miners can benefit from predictable budgets funded by established customers. This also helps miners boost income to be able to afford the high capital investment necessary to stay competitive with new mining equipment, concluded analysts at Morgan Stanley in an April report.

“The truth is that AI companies can pay more for that power because they don’t care. Their business model is stronger. With bitcoin mining, you have no idea what the price of bitcoin is going to be or how hard it’s going to be to mine one, so you’re taking a lot more risk,” says Dede.

Morgan Stanley’s report highlighted multiple miners’ sites suitable for conversion to data centers, including locations in Texas, Georgia, Canada, the United Arab Emirates and Bhutan. Most miners that are seeking to retrofit will be looking at capital expenditures north of $6 million per megawatt, according to Needham analysts.

For many mining companies, getting a piece of the high-performance pie is too lucrative an opportunity to pass up.

“It doesn’t mean miners will completely revamp their businesses,” says Phil Harvey, CEO of Sabre56, a hosting provider and digital-asset-mining consultancy. “They’ve already put a lot of money, time and effort into crypto and some of those sites are only going to be good for crypto.” But “it’s foolish not to be offering this up as a business,” he adds. “That opens up your investment universe a lot wider, private equity firms that are climbing over themselves to invest in HPC/AI because investors are saying ‘I want to be in this.’”

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