Core Scientific Targets AI Data Center Deals as Build Costs Climb

Key Points

• Core Scientific is expanding five new data center sites and has raised capital to pre-fund equity needs, secure contractors, and lock in long-lead equipment as it pursues long-term AI infrastructure contracts.
• CEO Adam Sullivan said AI demand and site requirements are evolving, with current builds geared toward GB300 and future projects shifting to 800-volt designs. The company is also keeping flexibility in its layouts while securing enough power for its pipeline over the next three years.
• Build costs are rising sharply, with data center construction now around $11.5 million to $12 million per megawatt versus about $8 million previously, driven by labor inflation and switchgear shortages. Sullivan said medium-voltage switchgear lead times are about 100 weeks, making pre-buying and supply planning critical.

Core Scientific NASDAQ: CORZ is focused on expanding five new data center sites under development, diversifying its customer base and positioning itself to win long-term artificial intelligence infrastructure contracts, CEO Adam Sullivan said at the 54th Annual TD Cowen TMT Conference.

In a conversation with TD Cowen communications infrastructure analyst Michael Elias, Sullivan said the company’s recent capital raise was important because it helped pre-fund a significant amount of equity required for its projects. He said Core Scientific has been putting capital into the ground, securing general contractors and locking in long-lead equipment.

“Building out that breadth of portfolio, putting the capital in the ground, getting GC secured, long lead equipment secured, those were all incredibly important and put us in a position to win contracts here,” Sullivan said.

AI demand and site design are evolving

Sullivan said customer requirements have changed significantly over the past six months as hyperscalers have moved more directly into the market after previously routing demand through “neoclouds” in late 2024. He said the first data halls being built across Core Scientific’s five sites are “essentially for GB300,” while future buildings are expected to shift toward 800-volt designs for deliveries in 2028.

Those changes, Sullivan said, are affecting supply chains, purchasing and engineering decisions. He said the company is trying to remain flexible in its designs so it can sign long-term contracts with multiple years of deployment.

Core Scientific also has been aggressive in land purchases, according to Sullivan, as customer willingness to use behind-the-meter power has increased. He said the company has enough power secured for its development pipeline for the next three years.

Credit backstops remain a requirement

Discussing potential customers that are not investment grade, Sullivan said Core Scientific has a “hardline requirement” that there be some type of credit backstop. He said the company has spent significant time negotiating credit wraps with investment-grade counterparties for deals involving neoclouds.

Sullivan said some neocloud companies have the talent and scale to be successful, while others face a more difficult path. He pointed to CoreWeave as a market leader and said chip makers may also try to support additional winners in the market.

“Giving the credit backstop is essentially a forcing mechanism to not only sell that first 40 billion in chips, but to lock in the next $40 billion sale six years from now,” Sullivan said, discussing how chip vendors may use support mechanisms to create longer-term customer relationships.

Pecos and Muskogee highlight labor and power challenges

Sullivan said labor remains the primary challenge at several sites, including Pecos, Texas. He said Core Scientific has reduced risk there by engaging general contractors and subcontractors and by building a concrete plant on site because concrete could not be shipped from the nearest facility at the necessary scale.

At Muskogee, Oklahoma, Sullivan said the company is already building a 70-megawatt data center for CoreWeave, while Google is building a 600-megawatt data center on neighboring property. He said that makes the labor market highly competitive.

Even so, Sullivan said Pecos’ expansion potential and proximity to natural gas pipelines in West Texas make it attractive to customers. He also said Core Scientific is working with Oklahoma officials on behind-the-meter power opportunities at Muskogee.

When asked whether utility power is a meaningful differentiator, Sullivan said speed to power is the priority. He said initial buildings at some sites are supported by utility power, which provides customers with comfort, while behind-the-meter power can add hundreds of megawatts within about 18 months.

Build costs rise as labor and switchgear remain constraints

Sullivan said Core Scientific had 245 megawatts fully commissioned and live, with GPUs running, and another 200 megawatts going through commissioning at the time of its last earnings call. He said the company expects to be around 450 megawatts by the end of the summer.

He cited two major lessons from the CoreWeave buildout: the need for more flexible designs and the importance of strong national labor partners that can support construction across multiple sites.

On costs, Sullivan said labor inflation has been significant, with nearly 20% increases across the board and 30% increases for electricians. Labor, which he said used to represent about 30% of overall build cost, is now closer to 40% or higher.

He said data center build costs have risen from roughly $8 million per megawatt several years ago to about $11.5 million to $12 million per megawatt today. However, he said design changes associated with NVIDIA’s Vera Rubin cycle and a move to 800-volt architectures could eventually reduce costs closer to $10 million per megawatt by removing some long-lead components.

Sullivan identified medium-voltage switchgear as the biggest lead-time issue, with roughly 100-week lead times. He said Core Scientific has been proactive in pre-buying medium-voltage capacity that can be shifted among sites if needed.

Pricing, consolidation and community concerns

On deal economics, Sullivan said hyperscalers have limited pricing flexibility and know what they are willing to pay on development yield. He said hyperscale deals are likely to come down to a 12% to 14% yield range, while higher returns may be available in neocloud deals for companies that select the right customers.

Sullivan said Core Scientific is primarily focused on delivering full “GPU-ready” facilities, though it has evaluated hybrid structures that combine powered shell and turnkey components. He said hybrid deals can reduce last-mile delivery risk but are not currently the company’s main focus.

Looking ahead, Sullivan said execution will become more important across the sector over the next year and could create consolidation opportunities if companies with missteps see valuations come down. He said Core Scientific’s near-term focus is signing additional large customers and expanding its organic pipeline.

Sullivan also said a real estate investment trust structure could be relevant longer term, though the company has significant net operating losses today and remains a few years away from that discussion.

Asked what keeps him up at night, Sullivan pointed to community-level concerns about data centers. He said Core Scientific has experience engaging with local communities from its bitcoin mining history, but public backlash against data centers has become more significant.

“How do we continue to stay at the forefront of being heavily engaged in the community?” Sullivan said. “Working really closely with community leaders to ensure that we’re getting the right information out about what we do as a company.”

About Core Scientific NASDAQ: CORZ

Core Scientific, Inc NASDAQ: CORZ is a leading provider of large-scale blockchain infrastructure and digital asset mining services. The company develops, owns and operates high-performance data centers optimized for the mining of Bitcoin and other proof-of-work cryptocurrencies. In addition to its core mining operations, Core Scientific offers colocation, hosting and managed services designed to support institutional clients and enterprise users in deploying and scaling blockchain nodes and computing hardware.

Core Scientific's service portfolio includes hardware procurement, deployment and maintenance, real-time monitoring, power management and network connectivity.

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