Core Scientific: Laying the Foundation for its Transition to AI/HPC Data Centers and 21X Growth Potential

Posted on March 19, 2025June 30, 2026 by io-fund

Core Scientific is a major Bitcoin miner leading the transition to high-performance compute (HPC) data centers with 1.3 GW of contracted powered infrastructure.
The Company signed 12-year hosting deals with AI Hyperscaler CoreWeave to provide 590 MW of HPC infrastructure valued at up to $10.2 billion.
CoreWeave will front the $750+ million in capex funds to modify Core Scientific’s data centers as an anchor client.
Core Scientific’s HPC hosting revenues could surge 21X per quarter when the full 590 MW of critical load go online in 2027.
ROTH MKM expects Core Scientific to reach a $1.58 billion run rate by 2027.
The I/O Fund will be holding a very tight stop on any position we initiate, and the stock would be for Advanced Market Signals only, indicating it qualifies for more advanced investors who are comfortable trading daily/weekly.

Core Scientific (NASDAQ: CORZ) is a digital infrastructure company that operates bitcoin mining and hosting services, and high-performance compute (HPC) hosting services through its nine purpose-built data centers. As one of the largest Bitcoin miners in North America, operating 171,000 mining rigs (164,000 owned), the Company is positioning itself for significant growth in the AI space.

Its strategic shift to high-performance computing (HPC) hosting is particularly compelling, allowing it to mitigate Bitcoin’s volatility while capitalizing on the surging demand for AI data centers. By securing high-margin HPC hosting contracts, the company is poised to tap into one of the most lucrative and rapidly growing markets in technology. While other Bitcoin miners are starting to catch on, attempting to transition to AI data centers, Core Scientific has a clear first mover advantage reinforced by lucrative multi-billion dollar 12-year contracts with upside revenue potential of $10.2 billion with AI hyperscaler CoreWeave with a trajectory aimed at generating 21X HPC hosting revenue growth in 2027.

Core Scientific’s Value Proposition for HPC Hosting Customers

Core Scientific provides many attractive value propositions to hyperscalers:

Specialized Power Infrastructure: HPC customers require more power than conventional data centers can offer. AI and HPC workloads require 6 to 10 times more electricity to operate. Traditional data centers are accustomed to single racks consuming 10 to 15 kW of power. Current AI racks push 80 KW as they will soon draw 120 kW to 150 kW in the next generations, with 200 kW within several years. Core Scientific has the existing infrastructure with nearly 900 MW of capacity for HPC hosting in addition to the 400 MW for Bitcoin mining capacity. , with 200 kW within several years. Core Scientific has the existing infrastructure with nearly 900 MW of capacity for HPC hosting in addition to the 400 MW for Bitcoin mining capacity.
Scalable HPC Infrastructure: They are actively transitioning their facilities to cater specifically to AI workloads with infrastructure optimized for machine learning and deep learning applications. Its Denton, Texas, facility is undergoing a $6.1 billion expansion, boosting its MW capacity by 97 MW to 394 MW with 47 more acres to 78 acres to host one of North America's largest GPU supercomputers for AI computing. It's being converted entirely for HPC hosting.
Location: Core Scientific operates 9 Application Specific Data Centers strategically located near major internet hubs in Georgia, Kentucky, North Dakota, North Carolina, Oklahoma, Alabama and three in Texas. Its new leased (with an option to buy) site in Alabama offers 11 MW of critical IT load and is scalable up to 66 MW of critical IT load, which Core Scientific is in discussions with potential new clients to contract for HPC hosting. They are developing a state-of-the-art 100 MW data center in Muskogee, Oklahoma.
Maintenance and Repair: Offering 24/7 around-the-clock monitoring, support and maintenance, Core Scientific is one of the largest application-specific integrated chips (ASIC) repair centers in North America, servicing their own and customer’s fleet of 171,000 bitcoin mining rigs. Parlaying from ASICs, they plan on using their expertise and manpower to replicate it and expand their offering on the GPU side.

CoreWeave: An Early Believer in the Core Logic’s HPC Transition

CoreWeave is an NVIDIA-backed AI Hyperscaler, providing AI cloud services by offering GPU clusters for HPC and AI workloads. CoreWeave is a specialized cloud provider offering an optimized platform for GPU-intensive tasks. They build and operate their own data centers equipped with a massive scale of over 300,000 Nvidia GPUs. They currently have 28 operational data centers and plan to open 10 new data centers in 2025, leasing a significant portion of their capacity with Core Scientific.

On March 6, 2024, Core Scientific announced an initial long-term deal with anchor customer CoreWeave to provide up to 16 MW of data center infrastructure for their HPC and AI workloads at their tier 3 data center in Austin, Texas. This helps to substantiate the pivot from Bitcoin mining to offering AI/HPC infrastructure, stating a “strategy shift” to AI may be good for a temporary stock price spike, but actually signing up customers is another story.

CoreWeave was already a GPU hosting client from 2019 to 2022, hosting thousands of GPUs. Despite the potential value of the March 6 deal being worth up to $100 million, it didn’t move the needle much for the stock price, which still traded under $4.00, selling off to $2.95 the following week.

CoreWeave Ups the Ante and Fronts the Capex Funds in $3.5 Billion Deal

Core Scientific was successful in delivering 16 MW of capacity more than 30 days ahead of schedule at its Austin, Texas, data center. This prompted more deals. On June 3, 2024, CoreWeave signed several 12-year contract deals securing 200 MW of infrastructure to host CoreWeave’s NVDA GPUs. Additionally, CoreWeave will fully fund (not pay for) the capital investments (capex), estimated around $300 million, required to modify Core Scientific’s “existing infrastructure into cutting-edge application-specific data centers customized for dense HPC." CoreWeave will put up the capital for the modifications and Core Scientific will credit them 50% of their hosting fees until it’s paid back fully.

Regarding CoreWeave paying for the capex, here is what was stated on the call:

“Yes. Thanks, Brett. I mean really, the difference in the CoreWeave deal is 100% funding of the CapEx. They were able to significantly buy down their rates. And I think as we look forward, what we're seeing for 2025 is frankly rather unique. If you're able to deliver capacity in 2025 and 2026 right now — we're definitely seeing those lease rates be much higher than we expected, especially given that many of these folks are willing to cover some portion of the CapEx of the build-out. So we're excited about where lease rates are going, and we believe we'll be able to extract a significant amount of value from the demand that we're currently seeing over the next few years.”

CoreWeave Contracts a Total of 502 MW Generating $8.7 Billion Over 12 Years

Once the 200 MW of HPC is operational Core Scientific estimates they’ll receive around $290 million annually or more than $3.5 billion during the initial 12-years terms of the contracts. CoreWeave exercised its options and signed for an additional 70 MW on June 25, 2024, and $105 million of capex funding, equating to an additional $1.23 billion for Core Scientific during its 12-year term. In August 2024, CoreWeave signed another 112 MW contract beginning in 2026.

In October 2024, CoreWeave exercised the rest of its options and signed another 120 MW hosting contract for 12 years for a total of a full 502 MW of critical IT load with a total revenue potential of $8.7 billion over the 12-year terms of its contracts. The average annual run rate is $725 million. HPC hosting revenues are expected to start flowing in 2025 with 200 MW delivered by the end of 1H 2025, up to 270 MW delivered by the end of 2H 2025, up to 382 MW by the end of 1H 2026 and up to 500 MW by the end of 2H 2026. CoreWeave is expected to fund capex costs of $750 million, which Core Scientific will credit 50% of the hosting fees until fully repaid.

CoreWeave: Providing 250,000+ NVIDIA GPU-powered AI Infrastructure For Lease

As Core Scientific’s largest anchor customer, it’s important to take a look into this client. Core Scientific is a direct benefactor of CoreWeave’s success. What’s good for CoreWeave is also good for Core Scientific.

CoreWeave is an AI hyperscaler that has evolved from a crypto miner that leased space and power (NVIDIA GPUs) from Core Scientific to an AI hyperscaler powerhouse with a roster of high profile clients including Microsoft, Meta Platforms, IBM, Cohere, NVIDIA and OpenAI. CoreWeave is a specialized cloud provider focused on offering scalable AI cloud infrastructure including access to over 250,000 NVIDIA GPUs, low-latency networking and high-bandwidth storage optimized for the massive computational workloads of AI training and inference and ML. The company stands out, as NVIDIA stated, “… CoreWeave has launched NVIDIA GB200 NVL72-based instances, becoming the first cloud service provider to make the NVIDIA Blackwell platform generally available.”

CoreWeave builds infrastructure that can scale at a moment’s notice that can go from zero GPUS to 10,000 GPU working on the same job within a minute.

In 2024, Microsoft accounted for nearly 62% of CoreWeave’s revenue (with Meta accounting for 15% according to H.C. Wainwright), which surged 737% YoY from $229 million to $1.9 billion. Customer concentration concerns were eased a bit with the signing of a $11.9 billion deal with OpenAI, who will also become an investor owning $350 million of stock. NVIDIA holds a 5% minority stake in CoreWeave, which will be going public in 2025.

Core Scientific Gets a Game Changer Deal with CoreWeave

The revenue potential of CoreWeave’s contracts is $8.7 billion over their 12-year terms, equivalent to $725 million annually once fully online. That equates to $181.25 million of quarterly HPC revenue, up from $8.5 million in Q4 or 21X potential, by early 2027. When compared to overall revenue, this is 2X growth on a quarterly basis.

The 21X growth in HPC and 2X growth in overall revenue is before the additional 70 MW $1.2 billion expansion deal announced at its Denton, Texas facility in its Q4 earnings release, resulting in the cumulative revenue potential of over $10 billion from CoreWeave, with 75 to 80% cash gross profit margins according to the Company. The full 590MW contracted to CoreWeave is expected to come online in 2027. This would be up from 250 MW expected in 2025.

CoreWeave Announces $1.2 Billion Expansion at Denton, Texas Facility

On Feb 26, 2025, coinciding with its Q4 2024 earnings release, Core Scientific announced a $1.2 billion 70 MW expansion at the Denton, TX site, for CoreWeave. The 70 MW of additional contracted power at the Denton site increases the full critical IT load to approximately 260 MW. The agreement increases CoreWeave's total contracted HPC infrastructure with Core Scientific to approximately 590 MW across six sites.

Under the terms of our Agreement with CoreWeave with respect to this additional 70MW, Core Scientific is responsible for funding $104 million of the additional required capex ($1.5M per MW), with CoreWeave responsible for the additional capex associated with the expansion. The company also retains the option for two additional five-year renewal terms.

This additional 70 MW brings the total projected revenue to $10.2 billion from CoreWeave over 12-year contract terms and a total of 590 MW of critical IT load spread through six Core Scientific sites. Core Scientific expects all 590 MW to be online in early 2027 as stated by CEO Adam Sullivan during the Q4 2024 conference call on Feb 26, 2025. He said this.

“Looking ahead, we now expect to have delivered approximately 250 megawatts of HPC capacity to CoreWeave by the end of this year, with the full 590 megawatts coming online in early 2027. This represents a shift from our previous timeline and reflects both the size and complexity of the project, particularly the addition of an incremental 70 megawatts of critical IT load.“

Adam Sullivan also added this, “So from what we're seeing on CoreWeave's demand side is significantly stronger than what we saw in 2024. There's a lot of things going on in the market today that we're seeing that's actually driving continued demand and flow into CoreWeave. And so we're excited about continuing to expand with them at Denton. And Denton is going to be one of the largest supercomputers in the United States, and it's going to be a flagship asset for CoreWeave.“

One note of caution: Core Scientific has all the makings of a hypergrowth stock and this includes immense risk. The company is recently out of Chapter 11 Bankruptcy and has to raise cash to fund operations, which means taking on debt. The I/O Fund will be holding a very tight stop on any position we initiate, and the stock would be for Advanced Market Signals only, indicating it qualifies for more advanced investors who are comfortable trading daily/weekly.

Looking Beyond the Q4 2024 Headline Numbers

Core Scientific reported disastrous-looking Q4 2024 earnings results based on headline numbers, with an EPS loss of ($0.60), missing consensus estimates for a loss of ($0.09) by ($0.51). Revenues fell 33.1% YoY to $94.93 million, missing consensus estimates by ($2.14 million). Yet, the stock gapped over 10% following its release.

The reason is that just beneath the surface, Core Scientific is setting up to solve one of the biggest issues the United States and the AI market face: power supply. The company is going through a transition period as it moves into the AI/HPC data center markets supported by AI hyperscaler CoreWeave, who just signed a five-year $11.9 billion deal with OpenAI.

$224.7 Million Mark-to-Market Adjustment Shouldn’t Spook Investors

The initial sting of the reported ($265.5 million) GAAP loss in Q4 2024 may sound like bad news, but $224.7 million of it is a non-cash mark-to-market adjustment on warrants; just accounting noise. The “actual” Q4 net loss was ($31.8 million), not ($265.5 million).

Core Scientific issued warrants, which are considered liabilities under GAAP accounting rules since the Company has to deliver stock at the exercise price. If the stock rises in value, the Company has to post a larger liability, but it doesn’t mean they are taking any actual losses. The Company issued two tranches of warrants at $6.81 x 98.3M shares for Tranche 1 (CORZW) exp. January 23, 2027, and $0.01 x 81.9M shares for Tranche 2 (CORZZ) exp. January 23, 2029, as part of its plan to emerge from Chapter 11 bankruptcy in January 2024.

The Company still receives the funds when the warrants convert as they issue the required shares. There are no real losses. In fact, it’s relatively good news since the higher the stock price rises, the deeper the “paper losses” appear until the warrants are all exercised or expired and taken off the books. However, that presents a dilution issue of an additional 180.2 million additional common shares.

The 116 Million Shares from Warrants Remaining Might Spook Investors

During 2024, Core Scientific received $4.4 million in proceeds from 646,109 shares of Tranche 1 warrants being exercised. On December 24, 2024, 60.9 million Tranche 2 warrants were exercised for $600,000. This leaves 116 million warrant-related shares remaining of potential dilution on the remaining warrants. Core Scientific has 294 million shares outstanding as of February 20, 2025.

As of February 20, 2025, the pro forma diluted share count is 501 million shares. This includes the current 294 million shares outstanding along with 207 million additional unissued shares that include Tranche 1 and Tranche 2 warrants of 116 million remaining, convertible notes of 70 million shares and 21 million shares of restricted stock and reserve shares.

Revenues Sink as Company Converts Bitcoin Data Centers to HPC Data Centers

The company’s Q4 revenue fell by (33.1%) YoY and (0.44%) QoQ to $94.93 million, primarily due to the decline in self-mined Bitcoin to 974, down from 3,042 in the year ago period. The Company has been converting some of its Bitcoin mining data centers to HPC data centers and actively “sunsetting” Bitcoin hosting contracts as it transitions to HPC hosting. The Bitcoin halving event also occurred in April of Q2 2024, thereby causing Bitcoin revenue to shrink on a YoY basis further magnifying the deceleration. Revenue fell short of estimates by (2.2%).

Analyst expect revenue to fall (48.26%) YoY to $92.77 million in Q1 2025, and fall (30.03%) YoY to $98.73 million in Q2 2025.

Full-year 2024 revenues rose 1.6% to $510.7 million.
Analysts expect FY2025 revenue to fall (3.71%) YoY to $491.75 million.

Revenue Segments: Bitcoin Revenues Drop in Preparation for HPC Revenue Acceleration

As Core Scientific transitions from Bitcoin self-mining and hosting to HPC hosting, the revenue segments can be expected to drop in the Bitcoin segments and rise in the HPC hosting segment. The quarters may look predominantly worse until the Core Scientific HPC revenues start to ramp up as they go online. Based on analyst estimates, Q1 2025 may be the final “kitchen sink” quarter before revenues reaccelerate.

Margins Consistently Expand Through 2024

Q4 gross margin was 5%, compared to 27.7% in the same period last year.
Q4 operating margin was (41.9%), compared to 2.8% in the same period last year. However, EPS is showing a rebound on the horizon as higher margin HPC hosting revenues increase.

GAAP EPS Trending Towards Positive After Mark-to-Market Adjustments on Warrants

Q4 GAAP EPS was ($0.60) compared to ($0.11) in the same period last year. The EPS miss was primarily due to the $244.7 million non-cash market-to-market (MTM) adjusted on the warrants.

Analysts expect GAAP Q1 2025 EPS to improve to ($0.10).
Analysts expect GAAP Q2 2025 EPS to improve to ($0.07).
Analysts expect GAAP Q3 2025 EPS to improve to ($0.05).
Analysts expect GAAP Q4 2025 EPS to improve to $0.01 as CoreWeave's data centers come online.

Full year 2024 GAAP EPS was ($4.39) compared to ($0.65) last year.

Analysts expect full year 2025 GAAP EPS to improve to ($0.24).
Analysts expect full year 2026 GAAP EPS to improve to $0.40 as more of CoreWeave’s data centers come online.

Cash Grows as Core Scientific Issues $1.09 Billion in Convertible Senior Notes

Core Scientific closed Q4 with $836.2 million in cash and $1.09 billion in debt. The debt is comprised of two convertible notes. In August 2024, The Company issued $460 million in convertible notes due 2029, which enabled the Company to refinance its debt from a 12% interest rate to 3% while increasing its cash position and removing covenants to allow the Company to accumulate Bitcoin. The conversion price is $11.00 at a rate of 90.9256 shares per $1,000 in principal, which brings a total 41.82 million shares issued upon conversion.

In December 2024, Core Scientific priced an upsized $625 million convertible senior notes offering due 2031. The conversion price is $22.49 at a rate of 44.4587 shares per $1,000 in principal. This brings a total of 71.61 million additional common shares upon full conversion.

The Implications of Not Being Investment Grade

Its worth noting that there are implications of not being investment grade especially when needing to raise cash. Considering Core Scientific emerged from Chapter 11 bankruptcy in January 2024, this status alone shapes their cash-raising strategy. Being non-investment grade tends to mean higher borrowing costs, but Core Scientific was able to cut their interest rate from 12% to 3% by swapping out the debt with convertible notes.

It’s worth noting that Core Scientific’s 3% interest rate is impressive for a company just out of bankruptcy implying the institution(s) are very confident in Core Scientific’s strategy. However, that route also comes with its potential share of dilution (41.82 million new shares) if shares are converted at $11.00 per share. Core Scientific has the option to redeem early if the stock trades 130% above the conversion price for 20-30 trading days ($14.30) after the initial non-call period August 2027.

The additional $625 million convertible also comes with dilution (27.79 million new shares) but at a higher conversion price of $22.49 and no interest rate. However, Core Scientific achieved this funding with 0% interest implying very high confidence that Core Scientific will either redeem the notes at maturity or that the shares will surge above the conversion price enabling them to convert shares for a profit before then. Both convertibles are senior unsecured obligations, therefore in the event of bankruptcy or default, unsecured creditors rank below secured lenders.

Valuation

The Company trades at a forward P/E ratio of 12.27. The trailing twelve month (TTM) P/S ratio is 4.34 and forward P/S is 12.27. The five-year average P/S ratio is 5.08. The P/S ratio peaked at 9.3 in November 2024.

Q4 Earnings Call: CoreWeave Contracts Totals $10 Billion in Potential Revenue

Management highlighted their strategic pivot from Bitcoin mining to HPC hosting. The Company delivered 500MW of capacity through 12-year agreements worth $8.7 billion, expanding its HPC infrastructure to over 1.3GW of contracted power. Its key initiatives include accelerating capacity expansion and targeting significant new site acquisitions, including projects in Auburn, Alabama, and Denton, Texas.

In Q4, the Company secured approval to expand its gross capacity at its site in Denton, Texas, by nearly 100MW, which equates to nearly 70MW of critical IT load. Denton is on track to host one of the largest GPU supercomputers in North America. The Auburn, Alabama, site currently has 11MW of critical IT load, and the Company is actively working with Alabama Power to secure a much larger power agreement. They are deferring significant capital deployment until they finalize negotiations with prospective customers.

CEO Adam Sullivan said this.

“Today, we announced a significant expansion of our relationship with CoreWeave at our Denton facility, which will bring that site to full capacity. This new agreement adds approximately 70 megawatts of critical IT load and represents approximately $1.2 billion in additional contracted revenue over a 12-year term. With this latest expansion, our total contracted value with CoreWeave now exceeds $10 billion, an amount that includes our Austin, Texas agreement, and covers roughly 590 megawatts of critical IT load once fully online. Of that total, just over 570 megawatts reflect the capacity we're converting at existing sites to HPC, where we expect 75% to 80% cash gross profit margins.”

However, Core Scientific will put up the CapEx to receive full HPC rental payments rather than 50% payments, with the other 50% being a CapEx credit for the upfront CapEx spent by CoreWeave. Sullivan said this.

“Under this newest agreement for the additional 70 megawatts, we will fund $1.5 million in capital expenditures per megawatt, whereas in prior agreements, CoreWeave covered those costs. In return, we will benefit from full rental payments during the first two years of the contract because there will be no CapEx credit associated with this new agreement.”

It’s worth noting that analysts may be considering 2027 full delivery as too ambitious considering as evidenced by the lowering of revisions. There are execution risks that may be out of their hands including grid delays and securing power with utilities (IE: working with Alabama Power to secure more power to the Auburn site), funding capex or negative developments with CoreWeave.

Prioritizing Customer Diversification and CoreWeave Timeline to Come Online Fully

Diversifying its customer base is a key priority as it aims to reduce CoreWeave's share of revenues to under 50% of critical IT load by 2028. The Company is in active discussions and remains confident in its ability to diversify its HPC customer base. The Company exited the year with 15MW of critical IT load. New block ASIC chips are expected in 2H 2025, which will refresh some of its Bitcoin mining fleet. Otherwise, there are no plans for any further CapEx spending in 2025 for its Bitcoin mining business.

CEO Adam Sullivan reiterated their top priority of diversifying new customers.

“We are in active discussions with dozens of new customers, including the vast majority of hyperscale providers in several large enterprise companies. Demand remains strong, but we're seeing considerably more due diligence compared to the first half of 2024. This heightened scrutiny reflects the influx of new market entrants who make ambitious capacity promises yet lack the tangible power agreements to back them up, much like the recent situation where a hyperscaler canceled contracts with companies that overstated their available power.”

The Company expects to have nearly 250MW of HPC capacity to CoreWeave delivered by the end of 2025. The full 590MW is coming online in early 2027. Core Scientific believes they can add another 300MW of capacity across existing sites by the end of 2027.

Earnings Call Q&A:

The Goal of Reducing CoreWeave’s Concentration of Revenue under 50%

Core Scientific is actively trying to diversify their concentration of revenue from CoreWeave.

Jeffries analyst John Peterson:

“Okay. And then I appreciate the goal of wanting to bring CoreWeave down to less than 50% of revenue by the end of 2028. I think that would require you to procure a lot more power this year in addition to signing on additional customers. So maybe just talk through the milestones that you need to hit throughout this year to be on track to do that.”

Adam Sullivan:

“We talk about the ability to continue to expand at existing sites. And that's a competitive process because we are getting direction in terms of how much additional power we're going to be able to achieve at some of our existing sites and then some of our new sites as well. Very attractive locations. Our focus today is on building blue-chip assets. And we want to have those blue-chip assets with blue-chip clients. And so that's where our focus is today. And we're going to continue to execute and acquire more sites to bring more capacity online to secure more contracts and achieve our goal of getting them below 50% by 2028.”

At 75% to 80% margins, 590 MW would yield $637.5 to $680 million, with a midpoint of $658.75 million after 2027 (assuming all 590 MW comes online). If CoreWeave is 50% of critical load by 2028, total HPC capacity needs to double to 1,180 MW from producing more power and acquiring more sites. It would require Core Scientific to assume more hyperscalers sign under similar 12-year terms to CoreWeave. Sullivan stated how diversifying its customer base was a top priority, “Starting with diversifying our customer base, this is the top priority for the company this year, and the goal is to sign enough contracts so that CoreWeave represents less than 50% of critical IT load by the end of 2028.” Sullivan mentioned 700 MW was available.

Nick Giles:

“So, appreciate your target that CoreWeave represents less than 50% of critical IT, but that implies that you sign at least the same amount with other customers, but you do have 700 megawatts that you've outlined between existing and new sites by 2027. So, should we assume that the delta would be new customers as well, or could that kind of 130 be split between a new customer and maybe one more tranche with CoreWeave?”

Adam Sullivan:

“Yes. So, we've outlined the 300 and the 400 number that's critical IT load megawatts, so about 700 megawatts. As we look forward if we have 590 of CoreWeave contracts the 700 available to us is really where our focus is going to be on executing new clients. So that's part of our goal to get them below 50%, to have enough capacity available and saleable for us to be able to bring them down to that level.”

How the Deep Seek News Only Made People Want to Move Faster

The Deep Seek news was a head fake as actual demand increased, and it only made people want to move faster.

Adam Sullivan:

“We've seen much more specific requests around locations in terms of developments and where they would like to build. But overall, the Deep Seek news for hitting the public markets rather hard from everything that we've seen on the actual demand side, demand continues to increase, and those conversations continue to progress very well.”

Diversifying the Customer Base Beyond Hyperscalers

While Core Scientific makes headlines when deals are made with name-brand hyperscalers, enterprise customers could also fill in pieces of the void to improve diversification.

Greg Lewis:

“Could you talk a little bit about you mentioned enterprise customers potentially. It's something that seems to be we're hearing more about beyond just the hyperscalers. As maybe you broaden out the customer base beyond just the hyperscalers, which it seems that latency is a big issue for them. Maybe scalability is a big issue for them. As you kind of look at potential enterprise customers, does that open up sites maybe in your portfolio and elsewhere that maybe under hyperscaler footprint wouldn’t work but through enterprise it might?”

Adam Sullivan:

“And so, we're looking at having hyperscale at the very least as anchor, potentially a single tenant. And if they're serving as an anchor, being able to fill out the rest of the capacity with enterprise clients as well. So, the demand, does it open up more sites with enterprise? Absolutely. But we're focused on blue chip assets with blue chip clients, which includes both of those groups.”

Delivery Times and Securing Power Agreements is a Competitive Advantage

Sullivan pointed out that many while demand remains strong, they are seeing considerably more due diligence compared to the first half of 2024 due to the influx of new market entrants that make “ambitious capacity promises” but actually lack the “tangible power agreements to back them up.” Sullivan referenced what may have been the rumored Microsoft cancellation of commitments with CoreWeave due to “delivery issues and missed deadlines.” Microsoft outright denied the cancellations.

Adam Sullivan:

“This heightened scrutiny reflects the influx of new market entrants who make ambitious capacity promises yet lack the tangible power agreements to back them up, much like the recent situation where a hyperscaler canceled contracts with companies that overstated their available power. Our proven track record and secured power agreements set us apart in this environment, and we won't be expanding our footprint unless we have a high degree of confidence in our ability to deliver for additional customers.”

When pressed about the rumor of Microsoft cancelling capacity with CoreWeave, Sullivan responded.

“I can't comment specifically on any relationship between CoreWeave and Microsoft other than what they've spoken about publicly. But, I mean, CoreWeave's continuing to expand. You're seeing it not only with Core Scientific, but really across the globe and internationally. So, from what we're seeing on CoreWeave's demand side is significantly stronger than what we saw in 2024. There's a lot of things going on in the market today that we're seeing that's actually driving continued demand and flow into CoreWeave. And so, we're excited about continuing to expand with them at Denton.”

Is Core Scientific in Discussions with Other Hyperscalers?

Needham analyst John Todaro inquired about discussions with other hyperscalers and CoreWeave. Sullivan noted they are in talks with a majority of hyperscalers in conversations with large enterprises. The customer conversations are continuing to evolve throughout the early part of 2025. Sullivan was asked if he saw any demand changes across inference and training workloads on the back of Deep Seek headlines.

Adam Sullivan:

“Denton was a site that we were really slating for CoreWeave. We did have conversations with some other hyperscalers and other clients on those megawatts. As we talked about the 300 megawatts potential at other existing sites, we're in conversations today with other potential customers around that. There's really no guarantee that anything like that would go to CoreWeave, because what we do want to do now is really focus on continuing to diversify our client base, and our existing sites are great campuses for us to do that.”

Elaboration on the Delays

Sullivan mentioned there were some delays from changing some of the designs to fit for the equipment further impacted by the constrained supply chains going out into 2026.

Adam Sullivan:

“And one of the things that we wanted to ensure that we achieved was that we had the right equipment on the right schedules for the site plans that we had. And so, that required us to change some of the designs to fit for the equipment that was available to deliver on the timelines that we set forward. And so, there was just some incremental delays there. But overall, we have high confidence in where the delivery schedules that we've put forward today. And we believe we're going to be able to hit those timelines.”

Management now expects critical IT load to be 250 MW, including the 16.5 MW, down from 270 MW plus 16.5 MW.

Brett Knoblauch:

“Thanks, guys. Really appreciate it. Maybe just quickly on the delays, if you will, or the pushback in timing. Just want to make sure I heard you right. You're now expecting critical IT load this year to be 250 megawatts. Does that include the 16.5? And before, you guys were expecting, I think, 270 plus the 16.5.”

Adam Sullivan:

“Yes, thanks, Brett. Yes, that's correct. That's really a push out of just one 40-megawatt building out into early 2026. And you're absolutely right. That number does include the 16.5 megawatts.”

Core Scientific Implements a Utility First Process For Evaluating Expansion Sites

For data center site selection, there is a shift away from large remote training sites towards locations that are closer to major metropolitan areas. This has been driven by demand and the need for proximity as the Company expands into new markets, which include the East Coast. However, prioritization is based on reliable utility partnerships.

Rosemarie Sison:

“Just to follow up on that comment that you made, Adam, about proximity to major metro areas. Would that mean that you're potentially looking at expanding out of the markets that you're in right now possibly into the East Coast or the West Coast as those opportunities present themselves?”

Adam Sullivan:

“Yes, absolutely. Thank you for the question, Rosemarie. I mean, we are building one of the larger data centers on the East Coast right now. And so, we have a lot of confidence in our ability to continue to expand in new markets. This is something where we're going to be one of the larger providers in the Dallas market. We believe something similar in the Atlanta market as well. So, we're definitely looking at continuing to enter into new cities. But albeit that looks a little bit different because we might have less familiarity with the utilities in that location. A point on that is we currently operate with seven utilities. We're continuing to expand our relationships across that base. And so, we're taking a very diligent process, a utility-first process, when we're evaluating entering new locations to ensure that we have a strong partnership and relationship with that utility so that we know that we have that firm power available when we go take them to a client.”

Conclusion: Solid Gameplan, Execution is the Key

Other Bitcoin mining companies are adopting Core Scientific's pivot to HPC hosting. However, Core Scientific's game-changing contracts amounting to over $10 billion in revenues over 12-year terms with CoreWeave give them a first-to-market advantage fortified by $10.2 billion in revenue potential from an AI disruptor.

CoreWeave, backed by NVIDIA as an investor and customer, is likely the leading hyperscaler in the market, positioning itself as a first mover in the AI data center space. Given NVIDIA’s potential preferential treatment toward CoreWeave, especially compared to competitors like Amazon who are building with custom silicon, CoreWeave is primed to lead the way in scaling AI infrastructure.

Hyperscalers will likely follow in CoreWeave's footsteps. This dynamic reinforces the notion that Core Scientific's strategic pivot to HPC hosting could be bolstered by CoreWeave's leadership in the hyperscaler space, further underscoring that what’s good for CoreWeave is also good for Core Scientific.

CoreWeave was initially interested in acquiring Core Scientific for $1.02 billion or $5.75 per share in June 2024, but was rejected and they decided to back them as they expanded their data center footprint. The downside to this relationship is the very limited customer concentration, as CoreWeave is their largest HPC hosting client. Core Scientific’s near-term future lies with CoreWeave. CoreWeave is expected to generate $10 billion from Microsoft as a client by the end of the decade.

As a potential lottery ticket element for investors, CoreWeave could revisit another acquisition attempt for Core Scientific after its IPO, where it would have additional cash and stock to use as currency. The initial acquisition attempt in June 2024 was for $1.02 billion in cash or $5.75 per share, which Core Scientific rejected stating that the offer “significantly undervalues the Company.” With an estimated $35 billion valuation, CoreWeave could make a much more attractive acquisition offer for less than it would be paying Core Scientific over its 12-year term leases.

Core Scientific has a solid game plan to accelerate its quarterly HPC hosting revenue by at least 21X in two years. As with any great game plan, the flaw always lies in the execution. Analyst estimates forecast one more kitchen sink quarter to go before revenues turn back up as HPC hosting revenues start to ramp up. The potential for more than doubling the outstanding shares to 501 million shares upon full conversion and vesting of restricted stock is concern down the road, but for now the game plan looks solid; the execution is the key.

Welcome to the I/O Fund’s new Discovery Tier, where we cover a new stock idea on a weekly or bi-monthly basis. We are excited to bring you more coverage from the I/O Fund team geared toward new idea generation only.

Jea Yu, Equity Analyst at the I/O Fund, contributed to this article.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

Recommended Reading:

AI’s Opportunity: Growth, Investment, and the Future

Posted on March 26, 2024June 30, 2026 by io-fund

The rise of AI marks a transformative technological, economic, and societal inflection point — one with extreme implications for how we live and invest. So, how can investors take advantage of the trend? Jordi Visser, CIO and Chairman of Weiss Multi-Strategy Advisers, spoke to Beth Kindig, our Lead Tech Analyst on the Real Vision podcast on March 20th, to dive deep into AI’s potential for explosive economic growth, how to find winners in this theme, sectors that benefit from AI, the potential for crypto to decentralize AI, and more.
Click here to watch.

Timestamps:

00:00 – Introduction

03:35 – Artificial Intelligence

07:44 – The Impact of AI

12:18 – AI compared to Mobile

16:48 – How long will it last?

22:14 – Tech sectors that will benefit from AI

30:14 – Sectors AI will disrupt

35:26 – AI, DeepMind and other industries

40:16 – Crypto and AI

43:28 – Q&A

Note: The I/O Fund owns Broadcom as of March 21st per our real-time trade alert sent to Premium members.

Recommended Reading:

AI’s Opportunity: Growth, Investment, and the Future

Posted on March 26, 2024June 30, 2026 by io-fund

Timestamps:

00:00 – Introduction

03:35 – Artificial Intelligence

07:44 – The Impact of AI

12:18 – AI compared to Mobile

16:48 – How long will it last?

22:14 – Tech sectors that will benefit from AI

30:14 – Sectors AI will disrupt

35:26 – AI, DeepMind and other industries

40:16 – Crypto and AI

43:28 – Q&A

Note: The I/O Fund owns Broadcom as of March 21st per our real-time trade alert sent to Premium members.

Recommended Reading:

Confluent Update and Q4 Earnings

Posted on February 24, 2022June 30, 2026 by io-fund

Below, we do another overview of Confluent’s product and an update following the Q4 earnings report. Here are two resources we recommend reading from our premium site for more information on the company.

Confluent Product Overview and Q3 Earnings

Big Data, Analytics and the Importance of ML

We believe open source with enterprise-grade features will become a key market moving forward as it solves for the downside of open source such as a lack of technical support. In Kafka’s case, the downside are things like a lack of data verification and having to manually connect to various data warehouses and other platforms to import/export data. Confluent also makes the argument that multi-cloud and hybrid cloud architectures are best served with a supported enterprise version for multi-tenancy security and data residency.

Notably, from my perspective, we are not betting on Confluent being used over the open-source version of Kafka in a direct competition, rather we are betting that Kafka will increase in importance. In this case, if Kafka continues to grow, Confluent will take a percentage of this market share should more enterprises prefer a managed version of Kafka. 70% of the Fortune 500 use Kafka and 80% of the Fortune 100. According to this site it has a 12.5% market share.

Kafka is popular because of its high-performance real-time data streaming capabilities for mission critical applications. It is distributed and fault-tolerant, which means if one component fails, the system will still work. It can also scale to hundreds of clusters and billions of messages.

As discussed in our original write-up, Kafka was developed at LinkedIN to process the large number of messages per second the social media company handles. The framework enables event streaming, which helps messaging and data integration. There is high scalability with a publish/subscribe model that allows applications to share and create data in a serverless and microservices architecture. What Kafka solves for is the ingestion of events data in real-time with low latency with continuous read/write. If data remains at rest and/or in a mainframe environment, then companies cannot be truly data-driven. Kafka on the other hand can scale from a billion messages per day to a trillion messages per day.

Machine Learning and Kafka

Confluent opens up the amount of data that can integrated. The thesis is the increase in the number of companies that will need real-time data processing and real-time data analytics due to the increase in software driven architectures. The idea is that “data in motion” will replace data at rest, or batch data processing from traditional databases. This is also important for the real-time data streams that machine learning requires.

Kafka is more than a messaging system as discussed in this article and is used for business applications, streaming ETL middleware, real-time analytics and edge/hybrid use cases for the framework.

Here are some examples of how Kafka can be used outside of messaging systems:

Fraud detection through a machine learning pipeline for Paypal’s billions of messages
Data correlation in real-time for Lyft for matching maps, estimated time of arrival and cost calculations
Unity uses Confluent to be internally data-driven across R&D and cloud-services, plus to help drive the monetization network by rewarding players for watching ads and incorporating banner ads
Continuous calculations for betting platforms
Drug discovery that is automated and scalable

Machine learning requires model training from historic data and also model deployment for scoring and predictions. Training can be done with batch yet scoring is partial towards real-time data. ML-powered applications run inferences on large volumes of data to return predictions very quickly (milliseconds). Rather than use Remote Procedure Calls (RPC) and frameworks like gRPC, some companies use a Kafka streaming model.

Here is how the company states the problem that Confluent seeks to solve:

“By becoming more software driven, more businesses will rely on real-time data. Confluent believes that data in rest is not able to meet the current and future demands of software-driven businesses. Daily batch processing and static real-time queries or “point-in-time” queries with stored data lead to an unnecessarily large and tangled architecture that is not capable of data flow between applications.”

Enterprise-grade Features

As with Spark and other open-source projects, there is a marketplace for making the frameworks easier to use. Confluent Kafka opens up the amount of data that can be integrated, for example, to combine transactional data (orders, inventory) with sentiment-driven data (likes, page clicks). This helps with predictive analytics and also machine learning because the “data flow” allows for algorithms to work as they are intended to.

In order for data to be in motion, Confluent’s platform connects data from many different sources. The company has over 50 fully managed connecters with Big Data and Analytics from Azure, Amazon/AWS, Google and Databricks. Without these connectors offered by Confluent, integrations between systems on an open-source framework can take months and also require intensive resources to manage.

Confluent is attempting to stave off competitors through “completeness of product” which touches on our multi-cloud and hybrid cloud discussion. We’ve discussed hybrid for a few years, yet our most recent write-up was here and here on Datadog. The recent write-up is worth a read if you want to know exactly why agnostic, best-of-breed products are sometimes outpacing Big Tech when it comes to cloud services and products. Datadog is the best example of a product where customers are avoiding vendor lock-in.

The completeness of product goes beyond multi-cloud and hybrid as Confluent is attempting to hold off competitors through data security and data governance, as well. Because data is often an organization’s most prized asset, it often has internal processes for compliance. There is often external, geographic compliance required by governments and industry agencies, as well, for global companies.

In order for completeness of product to work, Confluent needs to have a large geographic footprint. The company has added eight more regions for Confluent Cloud with an emphasis on APAC. There is also a new partnership with Alibaba Cloud. This can help offer differentiation for multinationals who have operations in China.

Competitors:

Regarding direct competitors, one example is Amazon MSK which offers a competing managed streaming service. This competitor is a good option for developers provisioning a Kafka cluster and a new streaming platform may not be needed in this case.

Rather than re-architect Kafka to be cloud-native, Amazon MSK cloud-enabled it as provisioned infrastructure. This means Confluent is stronger than MSK with scaling elastically by offering elastic quotas, which eliminates the need to size clusters for spikes. It’s also stronger on multi-tenancy security. Amazon MSK also does not offer Kafka Connect or Kafka Streams.

For more enterprise uses where Kafka Connect or Kafka Streams is required, then Confluent is more likely to be used to save development time and learning curve in writing Kafka Connects sinks and source.

Blockchain and Metaverse Potential

We’ve written at length about Confluent’s core use. However, there is a blockchain potential with Confluent with one case study right now with Dapper Labs.

“These are steps that attracted Dapper Labs. They're one of the most innovative NFT companies delivering fun and games on the blockchain. They have a number of decentralized apps, but one that's risen dramatically in popularity is called NBA Top Shot. To date, there have been over 10 million digital collectible transactions and Confluent is at the center of their data streaming architecture to facilitate these purchases. Dapper chose us to run their mission critical workloads because of the scalability and security of our cloud solution.”

There’s also a case for 5G networks needing data in motion. Here’s what was said about Dish on the call:

“A significant customer for both AWS and us is DISH Network. With their new 5G smart network, DISH is transforming how people and enterprises leverage data. They deployed Confluent Cloud over AWS to connect their network systems and customers with real-time data. This means that Confluent is a key part of their network's data backbone, starting with fault management and network resiliency functions to ensure network availability, and our enhanced collaboration with AWS is making it easier for customers like DISH to unlock data in motion everywhere.”

Confluent Q4 Overview

Confluent has been accelerating in revenue for four consecutive quarters and also across other key metrics.

The company reported fiscal year 2020 revenue growth of 58% year-over-year and fiscal year 2021 revenue growth of 64% year-over-year. Confluent Cloud revenue growth for fiscal year 2020 was 117% compared to FY2021 revenue growth of 200% year-over-year.

If we look at Q4, total revenue is outpacing the fiscal year growth for 2021 and also outpaced Q3. Revenue growth for Q4 was at 71% — the highest growth rate from publicly available information which dates back two years to Q1 2020.

Cloud revenue did decelerate on a sequential basis, however, the company stated Q4 is often seasonal due to engineers being out of the office and on vacations. We will see if this picks back up in Q1. Regardless, on an annual basis there was a significant improvement. Notably, if we look at 2020 cloud revenue, we can see it’s lumpy at times with Q3 2020 being the weakest and Q2 2020 being the strongest.

In regards to “sandbagging” which is essentially the company guiding low and blowing out the guidance, which has happened a few times now, the company has a lot of moving pieces in terms of business model and likely wants to win trust with institutions. We are not opposed to this even if it means the price action was somewhat severe after the earnings report due to the guidance. What we are more concerned with is that Confluent continues to raise and beat, and that the underlying key metrics help us to substantiate the company’s longer-term strength.

Bradley stated the following in our last write-up and got pretty close to the revenue growth that Confluent actually reported:

Looking forward, management guided that Q4 revenue will rise 55% YoY $109 million, which would mark a deacceleration from the most recent growth rate of 67% YoY growth. However, this estimate is likely conservative, as management guided that Q3 sales would grow 46% YoY to $90 million and actual Q3 sales grew 67% YoY to $103 million. If we assume that Confluent beats it guide by a similar amount in Q4 as it did in Q3 ($13 million), then Q4 sales growth will accelerate to 73% YoY (this is merely an observation – no guarantees).If we assume that Confluent beats it guide by a similar amount in Q4 as it did in Q3 ($13 million), then Q4 sales growth will accelerate to 73% YoY (this is merely an observation – no guarantees).

Most notably, the company is reporting high remaining performance obligations growth of 91% year-over-year. This is higher than the 75% year-over-year we saw in Q3.

Bradley discussed this in our last write-up:

Confluent also states that RPO is an important metric to monitor in order to measure the health of the sales pipeline. In Confluent’s first conference call as a public company (Q2), CFO Steffan Tomlinson explained that:

“Given the various revenue components and billing terms in our model, remaining performance obligations or RPO and current RPO rather than billings, are important metrics to measure the health of the business. RPO provides insight into the organic momentum of our business as it represents contractually committed revenue to be recognized in the future regardless of billing terms and variability in cloud consumption pattern”. RPO provides insight into the organic momentum of our business as it represents contractually committed revenue to be recognized in the future regardless of billing terms and variability in cloud consumption pattern”

Financials Deep Dive

By Bradley Cipriano

A slight blemish during the quarter was Confluent’s customer growth, which lagged the growth in sales. Customers increased 65% YoY to 3,470, which lagged the 71% YoY growth in total sales. This drove subscription revenue per customer up 4% YoY to $31,000/customer, implying the recent acceleration in sales was driven by higher spending rather than customer growth.

Generally, growth from new customers is more sustainable and higher quality relative to growth from increased spending. However, DBNRR remained robust at over 130%, signaling that customers are increasing their spend over time.

It is odd that customer spending increased but cloud growth deaccelerated during the quarter. Since cloud is a usage-based revenue model, increased spending should have driven cloud outperformance. However, cloud spending slowed from 245% YoY growth in Q3 to 211% in Q4. On the Q4 call, management explained that cloud was impacted by seasonality due to relatively lower spending over the holidays which lead to slightly slower rates of usage. While this may be true, it doesn’t explain the YoY deacceleration, as this trend would have existed in the year-ago quarter. Nevertheless, there is inherent variability in a usage-based model so investors should not expect an acceleration in sales every quarter.

Given the slowdown in customer growth and slight deceleration in cloud sales, the Street may be concerned that Confluent’s growth may be somewhat cannibalistic. This would explain the sell-off in its stock following otherwise strong results which reported a beat and raise. Investors may be wondering if cloud growth is coming at the expense of platform growth, or vice versa?

CEO-Founder Jay Kreps discussed this concern on the call and stated that the company is growing both in the cloud and in hybrid environments. He said that “we don't really view this as kind of a transition where we're just shifting from platform to cloud and just kind of swapping out customers from one product to the other. Effectively, we have to have kind of an outpost in each environment a customer is in. So, we expect to continue to see growth in Confluent Platform throughout this, and we think that's not a bad thing. That's a good thing.” CFO Steffan Tomlinson added that “what our customers are telling us is, by and large, they're running hybrid environments”.

A common issue with ramping cloud sales is that sales in other parts of the business stagnant, but we do not believe this is the case. For example, Confluent’s financial results remain high quality which suggests that cloud/platform sales are not cannibalistic.

For example, net deferred revenue (deferred revenue less accounts receivables) increased 105% YoY to $109 million, or 31% of TTM subscription sales. This was an improvement from the 26% and 23% level in Q4 2020 and Q4 2019, respectively. The rise in net deferred revenue relative to subscription sales signals that the company is receiving relatively more cash upfront, improving the quality of topline growth. If sales were cannibalistic, we would have likely seen a reduction in cash receipts and/or a deacceleration in growth. Instead, cash improved and sales accelerated.

Furthermore, RPO also increased 91% YoY to $501 million, an acceleration from the 75% and 72% YoY growth rates in Q3 and Q2, respectively. While we need the 10K to fully assess the quality of RPO, total RPO represents 92% of management’s NTM guide, up from 81% in Q3. This improves the quality of forward sales and suggests that there is conservatism in management’s forward guide.

However, we do note that cash support for RPO declined slightly during the quarter. Total deferred revenue-to-RPO fell from 52% in Q3 to 49% in Q4. This trend is likely driven by the rise of cloud bookings, since cloud is a usage-based model and new cloud customers are typically on pay-as-you-go plans, which are billed in arrears. On the Q4 call, CEO-Founder Jay Kreps explained that cloud accounted for 50% of ACV bookings in Q4, highlighting how cloud will be the majority of revenues going forward. As customers become more familiar with Confluent’s products, they will likely increase their commitments and convert from pay-as-you-go customers to larger customers that pay upfront. As a result, we view the slight decline in upfront cash receipts as a natural progression for the firm and not a major concern at this time.

Cash Levels and Stock Based Compensation

Confluent recently raised nearly $1 billion in cash following a convertible debt offering in December. Following this raise, the company has over $2 billion in cash, which is well above its current cash burn of ~$108 million (based on TTM free cash flow). The company is focused on growth, so investors should be prepared for continued losses and cash outflows. On the Q4 call, management highlighted that their near-term priorities are to continue to invest in innovation and to expand its geographic footprint, signaling that growth is being prioritized over near-term profitability.

Nevertheless, given Confluent’s relatively large cash balance, we likely should not expect an equity raise in the near term. However, the company will still be dependent on capital markets until it is sustainably cash flow positive. Looking forward, the Street expects EBITDA (a proxy for cash flows) to remain negative through at least FY2023, suggesting that Confluent will remain reliant on capital markets for the next few years. Importantly, there are signs of improvement, as free cash flow margin improved from -30% in the prior year to -22% in the current quarter.

Furthermore, Confluent has relatively high levels of stock-based compensation (SBC), which subsidizes cash used for working capital but dilutes shareholders. Stock-based compensation has trended near 48% of quarterly sales for the last two quarters and was 40% of TTM sales. This is relatively high and ranks in the top 10 for cloud (shown below), but is a function of Confluent recently going public (which frontloads SBC). We expect SBC to decline as a percentage of sale going forward as it laps the IPO and topline growth outpaces expenses.