Bitcoin miners such as Core Scientific are making the pivot to AI. Will it pay off?
One of the hottest opportunities in the tech sector right now is artificial intelligence (AI), so it’s not surprising that just about every company these days is trying to show that it is an AI stock. And that includes Bitcoin miners, some of which are now attempting to reinvent themselves for the new AI market opportunity.
The poster child for this shift into AI is Core Scientific (CORZ 1.68%), which shook up the Bitcoin mining industry at the beginning of June with a $3.5 billion AI computing deal. After the deal was announced, shares of Core Scientific skyrocketed in value, and the stock is now up more than 190% for the year.
The AI opportunity for Bitcoin miners
There’s a lot to unpack here, but it all comes down to raw computing power. AI requires an enormous amount of computing power, and that’s exactly what Bitcoin mining companies can offer. It turns out that some of their high-powered Bitcoin mining rigs can be repurposed for AI computing, and that’s creating a potentially huge new opportunity. Long story short, Bitcoin mining facilities are on the brink of being transformed into AI GPU hosting centers.
Wall Street analysts have been talking about a potential pivot to AI for months, and now Core Scientific is making it a reality. In early June, the company signed a 12-year contract with AI cloud provider CoreWeave to provide high-performance computing (HPC) power. All told, says Core Scientific, this deal could generate $3.5 billion in revenue during the term of the contract.
For Bitcoin miners, any new revenue will be greatly appreciated. That’s because the Bitcoin mining industry is incredibly cyclical. During lean times, Bitcoin miners need a safe, recurring source of revenue, and that’s exactly what AI is supposed to provide. Just two years ago, with the price of Bitcoin collapsing, Core Scientific filed for bankruptcy protection. It only emerged from the bankruptcy restructuring process in January.
Potential impact on valuation of Bitcoin miners
The size of the AI opportunity could be huge. For example, JPMorgan recently calculated that the AI computing opportunity has already added a cumulative total of $4 billion in value to the 14 Bitcoin miners the company tracks.
Image source: Getty Images.
Obviously, this AI opportunity is resonating with both companies and investors. The reason is simple: AI companies are facing the classic build-or-buy conundrum. They can either build their own AI computing centers, or they can buy them from someone else. According to JPMorgan, the average build time is five years. So you can imagine the tremendous interest in being able to get an AI project off the ground almost immediately instead of waiting five years.
Case in point: As soon as CoreWeave announced its AI computing contract with Core Scientific, it turned around and offered to buy the entire company outright. Talk about build or buy! Core Scientific, for its part, basically said thanks, but no thanks, we’re worth more than what you’re offering right now.
What investors should look for next
It’s been a mixed bag for Bitcoin miners thus far in 2024. Although Core Scientific has skyrocketed in value, other Bitcoin miners have not. In fact, some of the Bitcoin miners that posted triple-digit returns last year — such as Riot Platforms — are now in the red through the first six months of the year.
Investors appear to be favoring companies that have embraced the AI opportunity. As JPMorgan points out, Riot Platforms has somewhat surprisingly not been willing to jump on the AI bandwagon. And other Bitcoin mining companies simply don’t have the right types of mining rigs that can be easily converted for AI computing.
So, if you are thinking about investing in Bitcoin mining stocks, just keep in mind that not all companies are created equal. Focus on Bitcoin mining companies that are signing real deals with real revenue, and not just those talking about the potential AI market opportunity. That’s why Core Scientific might actually have a chance of going parabolic in the second half of the year. If it signs another high-profile deal in the coming months, then its stock price could be poised to soar even higher.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and JPMorgan Chase. The Motley Fool has a disclosure policy.
This news is republished from another source. You can check the original article here
