CoreWeave Inc. already had a relationship with Core Scientific Inc., but now the companies are due to become one as they look to combine in an all-stock deal valued at about $9 billion.
The deal, which was officially announced Monday morning, is a play on the power requirements of artificial intelligence, and CoreWeave (CRWV) sees opportunities to become more efficient through the planned tie-up.
CoreWeave, a data-center operator, has been using Core Scientific for infrastructure services and expects that it will own 1.3 gigawatts of gross power across Core Scientific's (CORZ) footprint once the deal closes.
"Owning this foundational layer of our platform will enhance our performance and expertise as we continue helping customers unleash AI's full potential," CoreWeave Chief Executive Michael Intrator said in a release.
The company added in the release that it "expects to generate significant cost savings through streamlining business operations and eliminating lease overhead." CoreWeave also sees benefits to owning an important power footprint, as this could give the company more control over its operations.
The Wall Street Journal reported on a potential deal in late June. At the time, Jefferies analyst Jonathan Petersen said in a note to clients that power has been a "gating factor" in CoreWeave's opportunity to sign more deals. With the purchase of Core Scientific, the company could gain "the ability to more seamlessly go out and hunt power directly," letting the company "continue to drive [the] top line and make it easier for them to compete on larger deals requiring more power," he said in that note.
Peterson also chimed in on what had seemed to be a mutually beneficial arrangement between the companies up to that point, after CoreWeave leased a data center from CoreScientific last year and went on to expand the relationship.
Read: Core Scientific's stock pops as company will help hot AI player host Nvidia chips (from June 2024)
Petersen said Core Scientific benefited from what seemed to be "highly favorable" lease economics, since CoreWeave was paying for most of the capital expenditures around data-center development, and CoreWeave notably was able to find "a willing developer for hundreds of [megawatts] of data-center capacity, which is particularly valuable as many traditional data-center developers were unwilling, or unable, to build that much capacity" for the company.
Shares of CoreWeave have roughly quadrupled since the company's March initial public offering, and Peterson thought that gave the company more ammunition for an acquisition, after its prior bid for Core Scientific was rejected last year for its lower price.
CoreWeave's stock fell 3.3% in Monday trading to $159.70, with the company due to issue new stock for the deal. That would dilute current shareholders. Meanwhile, Core Scientific's stock dropped 17.6% to $14.83. Core Scientific shareholders are to receive 0.1235 newly issued CoreWeave shares when the deal closes, amounting to a $20.40 per-share value based on CoreWeave's Thursday closing price. But Monday's recent trading action implies a $19.77 acquisition price, meaning that Core Scientific shares are trading about 23% below that level.
Brett Knoblauch of Cantor Fitzgerald wrote Monday that he thinks the acquisition price "appears low" for Core Scientific shareholders.
"Ultimately, the acquisition represents a significant premium to where [Core Scientific] was trading few weeks ago, but it is only 10% above its [all-time high] in November 2024," he said in a note to clients. Meanwhile, Core Scientific shareholders will be receiving CoreWeave shares, which have shot up dramatically in only a few months.
Plus, Knoblauch had estimated that Core Scientific was less than two years away from recording a run rate of roughly $700 million in cash profits, while shareholders also would have gotten about $5 billion in capital-expense payments from CoreWeave under the pre-deal arrangement.
After discounting Core Scientific's infrastructure and subtracting that from the quoted purchase price, Knoblauch estimates that the company is selling itself for roughly $6 billion. That implies a multiple of 8.6 times enterprise value to the run rate for earnings before interest, taxes, depreciation and amortization, or even less if you back out the value of the company's bitcoin-mining business. Plus, Core Scientific had the potential to become a real-estate investment trust in the future, and Knoblauch said comparable REITs trade for more than double that multiple.
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