Core Scientific's Q2 Revenue Disappointment and Strategic Merger Uncertainty: A Long-Term Investment Analysis

Core Scientific (NASDAQ: CORZ) has navigated a turbulent landscape in Q2 2025, marked by a sharp revenue decline and a contentious all-stock merger proposal with CoreWeave. For long-term investors, the interplay between these two developments—operational underperformance and strategic uncertainty—demands a nuanced evaluation of the company's future trajectory.

Q2 Revenue Shortfall: A Symptom of Shifting Priorities

Core Scientific's Q2 2025 revenue of $78.6 million fell 58% year-over-year, driven by a 62% drop in bitcoin mining output and a 73% decline in hosted mining revenue. While the average bitcoin price rose 50%, this offset only part of the losses. The company's pivot to colocation services, however, showed promise, with revenue climbing to $10.6 million—a 93% increase from $5.5 million in Q2 2024. This shift reflects a strategic realignment toward high-performance computing (HPC) infrastructure, a sector poised to benefit from the AI boom.

Yet, the broader financial picture remains concerning. Gross margins contracted to 6% in Q2 2025 from 28% in the prior year, while Adjusted EBITDA plummeted to $21.5 million from $46 million. These metrics underscore the challenges of transitioning from a crypto-centric model to a more diversified HPC business. For investors, the question is whether Core Scientific's operational restructuring can generate sustainable cash flows or if the company remains overly reliant on volatile digital asset markets.

The CoreWeave Merger: A High-Risk, High-Reward Proposition

The proposed $9 billion all-stock acquisition by CoreWeave has become a focal point of shareholder debate. While the merger aims to create a vertically integrated AI infrastructure giant, it has faced fierce resistance from major stakeholders. Two Seas Capital, Core Scientific's largest active shareholder with a 6.3% stake, has publicly opposed the deal, arguing it “materially undervalues” the company and exposes shareholders to CoreWeave's stock volatility.

The structural flaws of the merger are evident. CoreWeave's stock price dropped 30% post-announcement, reducing the effective valuation of the deal from $20.40 to just over $13 per Core Scientific share. This volatility, combined with the absence of price collars or cash components, leaves Core Scientific shareholders vulnerable to further declines. Additionally, CoreWeave's heavy debt load ($17 billion) and reliance on a narrow customer base (Microsoft accounts for 72% of its first-quarter revenue) raise concerns about the combined entity's financial stability.

Shareholder Resistance and Strategic Alternatives

Two Seas Capital's opposition is not an isolated voice. Analysts at KBW and other hedge funds have echoed concerns about the merger's fairness, particularly given CoreWeave's unchanged asset base since its initial $1 billion all-cash bid in 2024. The firm has urged Core Scientific's board to seek alternative bids or revise terms to include downside protections, such as a fixed price floor or a cash component.

The lack of a clear path to a revised deal complicates the investment thesis. While the merger could unlock synergies in AI infrastructure, the current structure appears to prioritize CoreWeave's interests over those of Core Scientific shareholders. For long-term investors, the risk of a poorly structured acquisition—potentially diluting Core Scientific's value—outweighs the potential benefits of a combined entity.

Investment Implications: Caution Amid Uncertainty

For investors considering Core Scientific, the Q2 results and merger uncertainty present a dual challenge. On one hand, the company's pivot to colocation and HPC aligns with long-term trends in AI-driven computing. On the other, the merger's structural risks and operational headwinds could erode shareholder value.

1. Short-Term Volatility: The pending shareholder vote and potential proxy battles may lead to further stock price swings. Investors should monitor CoreWeave's stock performance and regulatory developments closely.
2. Strategic Flexibility: If the merger collapses or is revised, Core Scientific could regain independence and focus on expanding its colocation business. This scenario would favor investors who believe in the company's standalone potential.
3. Alternative Bids: The absence of a cash component in the current deal leaves the door open for rival suitors. A higher bid or a more balanced structure could unlock greater value for Core Scientific shareholders.

Conclusion: A Tenuous Path Forward

Core Scientific's Q2 revenue shortfall and the contentious CoreWeave merger highlight the company's precarious position. While the strategic shift to HPC infrastructure is promising, the execution risks and merger-related uncertainties create a high-stakes environment. For long-term investors, patience and a diversified approach are key. Until the merger's terms are clarified or Core Scientific demonstrates consistent operational progress, the stock remains a speculative bet with significant downside risk.