We came across a bullish thesis on Core Scientific Inc (CORZ) on ValueInvestorsClub by onodacapital. In this article we will summarize the bulls’ thesis on CORZ. Core Scientific shares were trading at $8.21 when this thesis was published, vs. closing price of $11.48 on Sep 17.
Core Scientific Inc. (CORZ) stands out in the Bitcoin mining and high-performance computing (HPC) sectors due to its unique blend of assets and recent strategic moves. Core Scientific, originally a prominent Bitcoin miner, went through bankruptcy in late 2022. Since emerging from bankruptcy with a revamped and somewhat complex capital structure in January, the company has shifted its focus significantly. Recent developments, particularly a major deal with Coreweave, have added new dimensions to its investment potential, presenting a compelling opportunity for investors.
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Coreweave, a leading GPU-as-a-service provider, recently signed a transformative 12-year, $3.5 billion agreement with Core Scientific. This deal, announced on June 4, involves Core Scientific hosting Coreweave’s GPUs at their data centers, with the $300 million required capital expenditure covered by Coreweave. This arrangement will result in revenue for Core Scientific starting in 2025. The deal’s structure, which includes netting the Capex against the payment, and a revenue target of $1.4 to $1.6 million per megawatt per year, positions Core Scientific to benefit substantially. Given this arrangement and conservative assumptions, the Coreweave deal alone could add approximately $5.20 per share to Core Scientific’s value, potentially rising to $7 per share with more aggressive projections.
Additionally, Core Scientific owns 300 megawatts of high-performance computing capacity, which Coreweave has the option to lease. While the terms of this potential lease are uncertain, the company has indicated it expects to secure similar or better terms than those of the initial 200 megawatts deal. If Core Scientific can lease this additional capacity at the same rates, or even with a 40% discount, it could add another $4.50 to $7 per share to the company’s valuation.
The remaining component of Core Scientific’s business is its Bitcoin mining operations. Although traditionally seen as less attractive compared to the company’s new ventures, it still holds value. Assuming a reduction in mining capacity and a conservative valuation approach, the Bitcoin mining segment could contribute approximately $1.50 per share. This valuation reflects the lower multiples typically ascribed to Bitcoin mining compared to the higher premiums seen in AI and HPC sectors.
Combining these components, Core Scientific’s total value per share ranges from $10 to $18, compared to its current trading price of around $8. The disparity suggests significant upside potential. This potential is further supported by Coreweave’s recent offer to acquire Core Scientific for $5.75 per share, which was rejected by management, underscoring the market’s underappreciation of Core Scientific’s value.
CORZ is not on our list of the 31 Most Popular Stocks Among Hedge Funds. While we acknowledge the potential of CORZ as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as CORZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.