Denton, Texas Doubles Down on Core Scientific: From Crypto Mining to AI Supercomputing
In 2021, the city of Denton, Texas, grappling with significant debt, welcomed Core Scientific, a prominent bitcoin mining company, to establish a data center within its borders. The agreement promised substantial revenue through taxes and fees in exchange for a significant power contract, effectively doubling Denton’s energy consumption. However, the anticipated financial windfall was short-lived. Mere months after the data center commenced operations, Core Scientific succumbed to its own financial burdens and filed for bankruptcy, leaving Denton’s hopes of economic recovery in limbo.
Now, riding the crest of the burgeoning artificial intelligence wave, Core Scientific has undergone a metamorphosis, rebranding itself as a cloud computing provider catering to AI startups. The company has proposed transforming its Denton facility into what it proclaims will be one of North America’s largest AI supercomputers. Remarkably, Denton’s local government has granted approval for a substantial power increase, adding 100 megawatts to the existing 297 megawatt agreement. This augmented capacity, sufficient to power nearly 400,000 homes, surpasses even Elon Musk’s "Colossus" supercomputer located in Memphis, Tennessee.
Core Scientific’s pivot to AI reflects a broader industry trend. Numerous industrial bitcoin miners, grappling with the volatile cryptocurrency market downturn of 2022, often referred to as the "crypto winter," have sought refuge in the AI sector. Companies like Hut 8, Bitdeer, and Terawulf have followed suit, retrofitting their data centers to accommodate the high-end chips essential for training AI models. This shift was underscored by Core Scientific’s announcement of a $3.5 billion contract with AI hyperscaler CoreWeave in June. This partnership involves providing data center space to house a vast array of Nvidia H100 GPUs, consuming 200 megawatts of power. The news of this collaboration reverberated through the market, triggering a $4 billion surge in the market capitalization of 14 bitcoin miners possessing similar computing resources, according to JP Morgan.
The transition from crypto mining to AI computing, while seemingly dramatic, is technically straightforward for Core Scientific. The company has decommissioned its mining equipment and will modify its existing buildings in Denton to accommodate rows of GPU servers. Originally attracted to Denton by the readily available electricity and affordable real estate, the company’s journey has been marked by both promise and turbulence. Founded in 2017, Core Scientific expanded rapidly across the southern U.S. However, the 2022 bankruptcy necessitated a $500 million loan from creditors, including prominent investment firms like BlackRock and Apollo Global Management. Despite the financial challenges, the company reported $95 million in third-quarter revenue and $415 million in total revenue for the year, demonstrating resilience and a potential path forward in the AI landscape.
Denton’s initial embrace of Core Scientific’s crypto mining venture was not without its share of controversy. The project’s secretive nature and substantial energy footprint raised concerns among residents and some city officials. Core Scientific’s initial reluctance to publicly disclose its identity fueled suspicion, with one city council member likening the agreement to a "deal with the devil." Others questioned the environmental implications of dedicating significant city resources to a profit-driven enterprise with potentially high greenhouse gas emissions. However, assurances from Denton Municipal Electric (DME) that Core Scientific would bear the full financial risk ultimately swayed the council’s decision in favor of the project.
The bankruptcy filing in December 2022, following $434 million in losses the previous quarter, cast a long shadow over the partnership. Denton’s anticipated financial gains were significantly diminished as the project remained incomplete, leaving two large buildings unfinished. While DME earned $2.3 million in revenue from the data center in 2022, less than originally projected, the overall impact was still positive for the city. Core Scientific’s subsequent restructuring and emergence from bankruptcy, coupled with the lucrative AI computing contract with CoreWeave, has reignited hope for a more prosperous future. The company’s proposed $6.1 billion property investment is projected to generate $194 million in property tax revenue for Denton over the first ten years following the completion of the AI computing campus, anticipated around 2027. Furthermore, the project is expected to create approximately 300 full-time on-site positions and over 200 independent jobs, providing a potential boost to the local economy.
Denton’s continued commitment to Core Scientific, despite the initial setback, reveals a calculated gamble on the transformative potential of AI. The city’s willingness to grant increased power capacity and additional land for the AI computing campus signals a belief in the long-term economic benefits and job creation opportunities the project promises. However, questions remain about the environmental impact of this expansion and whether the city’s commitment to renewable energy will be sufficient to offset the increased energy demands. Furthermore, the lack of immediate participation in demand response programs, crucial for managing energy consumption during peak periods, poses a challenge that Denton and Core Scientific will need to address to ensure grid stability and minimize the risk of future disruptions.
