CoreWeave's $9 Billion Core Scientific Acquisition: Overpayment Risk or Strategic Masterstroke?

The recent $9 billion all-stock acquisition of Core Scientific by CoreWeave has ignited fierce debate among investors and analysts. While the deal aims to vertically integrate CoreWeave's AI infrastructure stack, market skepticism has sent Core Scientific's stock plunging 20% post-announcement, and CoreWeave's shares now trade at a 3.6% discount. This article dissects whether the acquisition overpays for Core Scientific's data centers, evaluates risks tied to its crypto-to-HPC pivot, and assesses the investment thesis for both companies.

Key Deal Terms and Strategic Rationale

CoreWeave's acquisition of Core Scientific is structured around three pillars:
1. Capacity Control: Securing 1.3 GW of existing data center capacity (840 MW already leased to CoreWeave, 500 MW repurposed crypto infrastructure).
2. Cost Savings: Eliminating $10 billion in future lease obligations, yielding $500 million in annual savings by 2027.
3. Vertical Integration: Gaining access to 1 GW+ of future power contracts critical for AI workloads, as highlighted by Microsoft CEO Satya Nadella's emphasis on “power constraints” over chip shortages.

The all-stock structure, however, carries risks. Core Scientific shareholders receive 0.1235 shares of CoreWeave for each share, diluting existing CoreWeave shareholders while granting Core Scientific's former owners <10% of the combined entity.

Valuation Concerns: Overpayment or Bargain?

Core Scientific's Intrinsic Value
- Core Scientific's Q1 2025 revenue fell 56% to $79.5 million, with Bitcoin mining revenue collapsing 75%. Its net income spike to $580 million was driven by non-cash warrant adjustments, not operational success.
- The $9 billion valuation implies a 18x forward P/E multiple on projected cost savings, but its debt ($1.12B) and negative operating cash flow (-$40.6M) weaken its standalone appeal.

Analyst Criticisms
- D.A. Davidson's Gil Luria: “This isn't about growth—it's about securing capacity that Core Scientific might otherwise reallocate. The stock's 288% rise since its IPO inflated the acquisition cost.”
- Mizuho: Downgraded CoreWeave to “Neutral,” citing overvaluation risks given its $75B market cap and reliance on Nvidia's GPU supply chain.

Counterarguments
- CoreWeave's high stock price (quadrupled since March 2025) made the deal cheaper than debt financing. The $500M annual savings are “automatic” once leases are eliminated, reducing execution risk.

Market Skepticism: Why the Stock Plunge?

Investor distrust centers on three factors:

1. All-Stock Structure: CoreWeave's volatile stock (up 300% post-IPO but prone to swings) leaves Core Scientific shareholders exposed to dilution and valuation risks.
2. Crypto-to-HPC Transition Uncertainty:
3. Core Scientific's colocation margins are just 8%, vs. 46% in mining. Its rural data centers lack the density and connectivity demanded by hyperscalers.
4. 90% of future revenue depends on CoreWeave, creating execution dependency. Competitors like Equinix offer superior colocation margins (20–30%).
5. Regulatory Risks: The deal requires shareholder and regulatory approvals, with potential litigation over the all-stock terms.

Risks and Rewards: Short-Term vs. Long-Term Outlook

Near-Term Risks
- Execution Delays: Only 8 MW of the 250 MW target is operational as of Q2 2025. Delays could strain Core Scientific's liquidity.
- Stock Dilution: CoreWeave's EPS will take a hit, especially if its share price remains volatile.
- Legacy Crypto Liabilities: The 500 MW crypto infrastructure must be repurposed or sold, adding complexity.

Long-Term Potential
- AI Infrastructure Boom: Global data center investments quadrupled Y/Y in Q1 2025, with rental rates rising 13% to $184/kW/month. CoreWeave's power contracts could become a moat.
- Cost Advantage: Lowering its cost of capital by “several hundred basis points” could improve margins on future projects.

Investment Conclusion: Sell Short-Term, Hold Long-Term

Short-Term (6–12 Months):
- Risk Factors: CoreWeave's stock remains overvalued at a 18x P/E multiple on projected synergies. Near-term headwinds include:
- Dilution pressure from share issuance.
- Execution risks in repurposing data centers.
- Regulatory hurdles and potential litigation.
- Recommendation: Sell CoreWeave (CORW) on rallies. The 30% drop in Core Scientific's stock (CORZ) post-announcement signals market distrust in the vertical integration thesis.

Long-Term (1–3 Years):
- Bull Case: If CoreWeave achieves its $500M annual savings and diversifies Core Scientific's client base beyond its own needs, the combined entity could dominate the AI infrastructure market.
- Recommendation: Accumulate CoreWeave on dips below $40/share, targeting a 2027 P/E multiple contraction to 12x.

Final Take

CoreWeave's acquisition is a high-risk, high-reward bet on owning the infrastructure powering the AI revolution. While the all-stock structure and execution uncertainties justify near-term caution, the strategic rationale—securing power capacity and eliminating leases—could pay off if the HPC transition succeeds. Investors should tread carefully now but keep an eye on Q4 2025, when the deal's closure and initial cost savings materialize.