Core Scientific: A Tactical Play on the Merger Rejection Catalyst

The specific catalyst is clear: the abrupt termination of a major strategic plan. In October 2025, Core Scientific's shareholders decisively rejected a $9 billion all-stock merger agreement with AI cloud firm CoreWeave. The deal, announced in July, would have seen Core Scientific shareholders receive just 0.1235 newly issued shares of CoreWeave Class A common stock for each share of Core Scientific, leaving them with less than 10% ownership in the combined entity. The merger was terminated effective immediately on October 30.

The primary driver of the rejection was shareholder concern over the deal's structure. Critics, led by Core Scientific's largest investor, Two Seas Capital, argued the all-stock, uncollared structure leaves Core Scientific shareholders exposed to the high volatility of CoreWeave's share price with no protections. This wasn't a theoretical worry. In the weeks following the shareholder vote, CoreWeave's stock suffered a severe downturn, with $33 billion of its value erased in just six weeks. The rejection removed a major overhang, but it also highlighted the perceived risk of the original transaction.

The immediate market reaction was a sharp pivot. With the merger off the table, analyst sentiment began to shift. Most notably, BTIG recently upgraded Core Scientific to Buy with a $23 price target. The firm's rationale frames the rejection as a positive development, citing improved prospects after the CoreWeave merger rejection and strong underlying demand for high-performance computing power. The upgrade suggests the market is now focusing on Core Scientific's standalone execution potential, rather than the uncertain outcome of a risky merger.

The Setup: Valuation Disconnect and Momentum Shift

The market is clearly pricing in a change of narrative. The technical setup shows a dramatic momentum shift. Core Scientific's momentum score, a measure of relative strength, jumped from a bearish 16.34 to a bullish 81.98 in a single week. This isn't just a minor uptick; it's a definitive reversal from a position of weakness. The stock's price trend indicators are now positive across all timeframes, signaling a clear upward trajectory that had been absent for months.

This surge is backed by solid price action. The stock is up 29.2% over the last 120 days and trades near a 17.7% gain year-to-date. Yet, it still sits well below its 52-week high of $23.63. This creates a specific tactical window: the stock has rallied hard from a low base but hasn't yet retested its peak, suggesting room for further upside if the new thesis gains traction.

The core of the investment case, however, hinges on a valuation disconnect. BTIG's upgrade explicitly points to this mispricing. The firm argues Core Scientific trades at roughly $4 million per megawatt of power capacity, a figure that includes its permitted power. This is a significant discount to the peer average near $7 million per megawatt. For a company pivoting aggressively from crypto mining to high-performance computing, that gap represents a tangible asset value that the market appears to be ignoring.

The bottom line is a classic event-driven setup. The merger rejection cleared a major overhang, and the stock's technical momentum has snapped decisively higher. The valuation gap provides a fundamental anchor for that move. The risk is that the rally is simply momentum chasing, with the stock now trading near its recent highs. The opportunity is that the underlying asset value, as measured by power capacity, is being undervalued relative to peers. The stock's path will now depend on whether Core Scientific can execute on new HPC deals fast enough to justify closing that gap.

The Execution Test: HPC Demand vs. Operational Risks

The momentum shift is clear, but the stock's next move hinges entirely on execution. With the merger overhang gone, the narrative has flipped to one of speed. BTIG's upgrade explicitly calls for Core Scientific to move fast in 2026, landing new high-performance computing colocation deals. The company's asset base is substantial, with 1.3GW of data center capacity to leverage. The near-term catalyst is straightforward: can it convert this physical footprint into contracted revenue quickly enough to justify its valuation?

The key operational risk is power. Securing additional, affordable power and deploying it profitably is the make-or-break factor. Underutilized capacity directly pressures margins, a critical concern given the company's thin financials. Evidence shows a gross margin of just 6.6% and a pretax profit margin of -189.4%. Any new power must be tied to deals that generate sufficient cash flow to cover costs and improve this dire profitability picture. The risk is that the company's aggressive pivot is hampered by its ability to source and activate power at scale.

A regulatory headwind adds another layer of complexity. Japan's new rules, which require digital asset businesses to maintain hefty reserves, could impact Core Scientific's operations or valuation. While the company is pivoting to HPC, its legacy crypto exposure means it must navigate these new requirements, potentially tying up capital and creating uncertainty. This is a specific, tangible friction that could slow its operational focus.

The bottom line is a race against time. The stock's rally prices in a successful pivot, but the evidence shows a company with significant financial vulnerabilities and a clear need for rapid execution. The catalyst for further upside is new HPC deal announcements that demonstrate the ability to fill its 1.3GW pipeline. The risk is that operational delays or margin pressure from underutilized assets will cap the stock's gains, leaving it vulnerable to a pullback if the 2026 execution plan falters.

Catalysts and Watchpoints

The bullish thesis is now live, but it requires confirmation. The near-term setup is defined by a handful of specific events and metrics that will signal whether the rally is sustainable or a dead cat bounce.

The primary catalyst to watch is new business execution. BTIG's upgrade hinges on Core Scientific moving fast in 2026 to land HPC colocation deals. The stock's recent momentum is a reaction to the merger overhang being lifted, but it needs concrete evidence of asset utilization to justify a move toward its $23 price target. Traders should monitor for announcements of new contracts or power agreements in the coming quarters. Any news that demonstrates the company is successfully converting its 1.3GW data center capacity into contracted revenue will be a direct positive trigger.

Technical indicators provide a real-time gauge of institutional interest. The stock's momentum score has already shown a dramatic reversal, jumping from a bearish 16.34 to a bullish 81.98. The next watchpoint is whether this momentum holds. A sustained uptrend requires more than a one-week spike; it needs consistent price action and volume. The stock's recent 2.76% gain today and elevated volume of 8.59 million shares are positive signs, but watch for a return to higher trading volume as a signal of broader participation. A drop in volume alongside a sideways price would suggest the initial momentum is fading.

Finally, be alert to regulatory developments that could introduce new friction. Japan's new rules, which require digital asset businesses to maintain hefty reserves, are a specific headwind. While Core Scientific is pivoting to HPC, its legacy crypto operations mean it must navigate these requirements. Any update on compliance costs or capital allocation impacts from these regulations could serve as a negative catalyst, creating uncertainty that the market is currently ignoring.

The bottom line is a checklist of forward-looking events. The stock has rallied on a cleared overhang, but the path forward depends on new contract wins, sustained technical strength, and the absence of new regulatory surprises. Monitor these watchpoints closely to assess the validity of the event-driven setup.