Core Scientific: Deserves Better As HPC Moves Into High Gear

Core Thesis - Bitcoin miners are facing significant challenges post-halving, with reduced rewards and increased production costs, leading to potential bankruptcies or acquisitions in the industry [2][4][18] - Core Scientific has adapted effectively to these challenges, maintaining strong revenue growth and operational efficiency, particularly through its diversification into High-Performance Computing (HPC) [3][11][20] Bitcoin Mining Landscape - The Bitcoin halving event reduced block rewards from 6.25 BTC to 3.125 BTC, increasing competition and mining difficulty by approximately 67% [2][4] - Miners are experiencing higher production costs due to inflation and rising energy prices, with many unable to sustain operations without sufficient Bitcoin reserves [2][4] Core Scientific's Performance - Core Scientific generated 78% of its Q2 2024 revenues from Bitcoin self-mining, with total revenue reaching $141 million, up from $126.9 million year-over-year [3][6] - The company successfully reduced its cash cost to mine by migrating to sites with favorable power pricing and adopting newer mining equipment, despite a 60% increase in costs to $29.9K per Bitcoin [4][5] Financial Metrics - In Q2 2024, Core Scientific produced 1,680 Bitcoins, generating $141 million in sales, while managing to reduce total debt by $56 million to $552 million [5][6][20] - The company’s operating income for Q2 was $6.58 million, despite increased operational expenses, showcasing its ability to maintain profitability [6][20] Diversification into HPC - Core Scientific is expanding into HPC, with a significant contract from CoreWeave for 112 MW of infrastructure, potentially generating $6.7 billion over 12 years [7][11] - This diversification is expected to enhance revenue stability and reduce reliance on Bitcoin mining, which currently contributes over 75% of its revenue [11][20] Market Valuation - The company's revenue estimates have been adjusted to $962.67 million, reflecting a year-over-year growth of 37.66%, with a forward price-to-sales ratio of 2.61x [12][13] - Core Scientific's trailing price-to-sales ratio is slightly above that of peers, indicating potential for better market valuation as it scales its HPC operations [15][16]