Core Scientific: A Strategic Bet on the AI Infrastructure Revolution

The recent Q1 2025 earnings report from Core Scientific (CORZ) has ignited debate over the company's trajectory. While headlines fixated on its $580M net income—driven largely by non-cash adjustments—the real story lies in its deliberate pivot from volatile bitcoin mining to high-margin AI colocation infrastructure. This transition, coupled with its underappreciated partnership with CoreWeave, positions CORZ as a critical play on the AI boom, even as it navigates near-term headwinds. Let's dissect why this stock deserves a closer look now.

The Pivot to AI Infrastructure: A Necessary Evolution

Core Scientific's Q1 results underscore a stark reality: its legacy bitcoin mining business is fading. Revenue from self-mining plummeted 56% year-over-year to $67.2M, a direct consequence of the Bitcoin halving event and the company's intentional shift toward colocation. Yet this pain is purposeful. By redirecting resources to its colocation division—which now accounts for 11% of revenue but has 8% adjusted gross margins (excluding power pass-through)—Core Scientific is laying the groundwork for a more sustainable, high-margin future.

The company's strategy is clear: leverage its existing infrastructure and expertise in high-density computing to become a premier provider of AI infrastructure. This pivot is timely. The AI sector is projected to generate $15 trillion in economic value by 2030, with data center demand growing at a 12% annual clip. Core Scientific's 1.3 GW capacity target by 2027—up from 79 MW today—positions it to capitalize on this surge.

The CoreWeave Catalyst: A $10B Runway

At the heart of this transformation is Core Scientific's partnership with CoreWeave, an AI cloud platform. The terms are compelling: CoreWeave will pay for 250 MW of colocation capacity by year-end 2025, with take-or-pay contracts, fixed pricing, and asset-backed security. The economics are even better: this single customer alone could generate over $10B in revenue over 12 years, with 8% gross margins scaling with volume.

But the opportunity extends beyond CoreWeave. By mid-2027, Core Scientific aims to have 590 MW contracted across five sites, including its flagship 260 MW Denton, TX facility. This diversification—combined with its ability to deploy capacity rapidly (e.g., 8 MW by May 2025, 40 MW by June)—suggests a path to positive free cash flow as contracts come online.

Valuation: A Discounted Asset in Transition

Despite the Q1 net income surge, Core Scientific's stock trades at just 2.3x its projected 2027 revenue run rate—a stark discount to peers like Equinix (EQIX) trading at 14x. This disconnect persists because the market remains fixated on near-term pain: negative EBITDA, cash burn, and a $1.1B debt load. But these are transitional hurdles.

Consider the balance sheet: $700M in cash and a debt maturity profile that requires no material repayments before 2027 provide ample runway. Meanwhile, the CoreWeave contract's fixed pricing and volume guarantees reduce execution risk. As colocation revenue scales, operating leverage should improve sharply. At 500 MW deployed, for example, the 8% margin could generate $40M annualized EBITDA—up from today's breakeven.

Addressing the Risks

Bitcoin mining's decline and the $56K cost per bitcoin mined in Q1 highlight the risks of clinging to legacy assets. Core Scientific is addressing this by mothballing older facilities and focusing on its most efficient sites. While this may prolong near-term losses, the company has made clear its priority: redeploy capital toward high-margin colocation.

The stockholders' deficit and leverage are valid concerns, but the path to resolution is visible. Converting debt into equity via warrants (as seen in Q1's mark-to-market gain) and scaling colocation EBITDA could rebuild equity over time.

Conclusion: A High-Reward Inflection Point

Core Scientific is at a critical juncture. Its Q1 results were a mixed bag on the surface, but beneath the noise lies a company executing a bold strategic shift. The CoreWeave partnership is a game-changer, and the 2025-2027 capacity ramp offers clear catalysts for growth. With shares trading at a fraction of their fair value and the AI infrastructure tailwind accelerating, now is the time to position for this transition.

Investors seeking exposure to the AI revolution without overpaying for it should take note: Core Scientific's stock is a discounted call option on one of the most compelling secular trends of our time. The risks are real, but the reward-to-risk ratio is compelling for those willing to look beyond the noise.

Act now—before the market catches up.