In the rapidly evolving landscape of the 2020s, artificial intelligence (AI) has emerged as a pivotal topic of interest, particularly among investors, who are increasingly drawn to its potential. In this context, bitcoin miners are shifting their focus toward AI, with prominent players like Core Scientific and Bit Digital taking the lead. Core Scientific’s strategy revolves around a multi-billion dollar, 500 megawatt partnership with CoreWeave, while Bit Digital has achieved remarkable profit margins among publicly traded bitcoin miners dabbling in AI. As both firms chart their unique paths forward, the forthcoming two years will shed light on their abilities to maintain their competitive edge amidst the challenges of pivoting toward AI.
As bitcoin miners navigate their entry into AI, leasing AI-grade data centers has emerged as a common strategy. This model allows miners to utilize existing infrastructure while minimizing upfront investment. However, revenue generated from these operations remains modest; for instance, five public miners reported a combined $40.3 million in revenue from their high-performance computing (HPC) ventures in the first half of 2024. Among them, Bit Digital stands out with a robust profit margin of 60%, attributed to its ownership of roughly half the GPUs in its leased data center in Iceland. In contrast, other miners like Core Scientific and Hut 8 demonstrate more modest margins, indicating varying levels of success in the sector.
Bitcoin miners typically have four routes to establish AI operations: leasing data centers, acquiring existing operations, building from scratch, or retrofitting bitcoin mines. Leasing is a straightforward entry point but often comes with limited profitability due to rising rental costs. Alternatively, acquisition can provide quicker scalability, as evidenced by Hut 8’s purchase of five data centers. The most expensive and complex options lie in building a new data center or retrofitting an existing mining facility, which demands infrastructure suitable for both high-performance computing and the redundancy typically not required for bitcoin mining. The increasing demand for sophisticated data centers, particularly at the hyperscale level, drives the costs associated with these strategies.
Retrofitting, while promising, is characterized by high risk and uncertainty. Core Scientific and Iris Energy (IREN) are experimenting with this approach, with Core Scientific securing significant contracts to provide AI capacity through retrofitting efforts. Analysts remain cautious about the practicality of retrofitting bitcoin mines, highlighting the complexities involved in transforming the existing infrastructure. Yet, the potential cost savings of retrofitting compared to new builds—from existing energy infrastructure to reduced lead time—could favor companies like Core Scientific in the long run, provided they successfully navigate the operational challenges.
In terms of competitive positioning, Bit Digital’s success in leasing and its recent acquisition of the HPC business Enovum highlight its focus on safer growth strategies, while Core Scientific embodies a high-risk, high-reward approach through retrofitting. Analysts believe that both companies are well-poised for success, given their current pipeline and revenue generation. Investors appear divided on their strategies, with those seeking higher risk favoring Core Scientific’s potentially lucrative retrofitting path, while those prioritizing stability might lean toward Bit Digital’s acquisition approach that already shows promise.
Looking beyond these two leaders, the analysis reveals other potential opportunities within the bitcoin mining landscape. Riot Platforms, currently not engaged in the AI sector, stands out as a potentially valuable asset for hyperscalers looking for partnerships or acquisitions in the HPC space. Despite being less involved in AI, Riot’s extensive resources and locations make it an intriguing prospect for companies eager to expand their infrastructure. With the right approach and strategies, bitcoin miners can tap into the burgeoning AI market, navigating the complexities and unpredictability of this transition while positioning themselves for future growth and profitability.
