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Insatiable demand for AI data centers becomes a target for cryptocurrency miners
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Matt Brown believes he was one of the most sought-after attendees at the technology conference hosted by Nvidia Corp. this spring.
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Published on June 05, 2024 • 5 minute read
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(Bloomberg) — Matt Brown believes he was one of the most sought-after attendees at a technology conference hosted by Nvidia Corp. this spring.
From employees of the chip manufacturing giant itself to those representing Silicon Valley stalwarts like Google and Amazon.com to little-known artificial intelligence startups, it seemed like everyone wanted to ask the 46-year-old executive of cryptocurrency mining firm Core Scientific Inc . if your company had additional capacity in its data centers.
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“Just getting cold calls or getting text messages from industry peers who are looking for capacity because they find it’s just not there,” he said in an interview last week. “Everyone is trying to figure out in the next 12 months where they’re going to find capacity, and it’s getting exponentially more difficult.”
The AI boom has created an unprecedented shortage of both data center space and graphics processing unit chips used in AI, as well as quick access to enough electrical energy to power it all. New facilities under construction are filling up quickly: About 83% of the capacity of data centers under construction has already been pre-leased, with AI companies and cloud providers driving demand, according to a March report from commercial real estate company CBRE Group.
The search for any available data center space is leading many in the AI field to a number of crypto-mining companies, which already have the necessary resources and are looking for more profitable uses for them. The surge in demand was evident this week when Core Scientific announced a partnership with AI startup CoreWeave that will generate about $3.5 billion in revenue over 12 years — news that was quickly overshadowed by a Bloomberg report according to which CoreWeave had made an offer to buy Core Scientific outright for approximately $1 billion.
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“We see the opportunity in AI today to convert existing infrastructure that we own to accommodate customers who want to install very large arrays of GPUs for their customers who are ultimately AI customers,” said Adam Sullivan, CEO of Core Scientific. in an interview before news of CoreWeave’s offering broke. He declined to comment on the takeover report Tuesday.
The cryptocurrency miner has identified around 500 megawatts of data center capacity that can be converted into facilities to power AI, which is “the largest installation of these AI-dedicated GPUs perhaps anywhere in the world,” he said. Sullivan said. To put this capacity into perspective: that’s enough electricity to run hundreds of thousands of homes for a year.
It’s no wonder, then, that CoreWeave would be interested in simply purchasing the entire Austin, Texas-based company. And reactions in the stock market — including a 22% jump in shares of mining company TeraWulf Inc. on Tuesday — suggest that investors are betting on more good news for the sector.
One of the main challenges in building data centers is providing the energy needed to run them. It’s a complicated process that often includes building substations that allow data centers to draw electricity from a power grid, and construction of the facilities typically takes at least a few years to complete.
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If a data center developer could secure a power source with a two-year advantage over a competitor, they would be willing to pay a premium of about 101% over energy prices, assuming a GPU economic life of six years , according to an estimate by Morgan Stanley. Even assuming an economic life of the chips of 10 years, analysts estimate a premium of 61%.
Data center conversions
One way to gain an advantage is to simply convert existing data centers dedicated to mining, an energy-intensive process in which specialized computers solve mathematical puzzles to validate encrypted transactions on the blockchain in exchange for compensation in the form of Bitcoin or other cryptographic tokens. . An April update to Bitcoin’s blockchain software, which halved the rewards paid to miners, makes the proposition especially attractive now.
A data center that can be converted quickly has a much higher value than its role as a mining facility, the Morgan Stanley report says. The company’s analysts have identified more than seven gigawatts of sites that could be adapted across the 21 major public cryptocurrency mining companies, which collectively contribute only about a quarter of the computing power involved in mining Bitcoin.
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While some cryptocurrency miners looking to ride the AI boom are looking for more convertible data centers and readily available power to lease to AI companies, some are taking a more direct approach by buying specialized hardware and selling AI power. calculation directly to AI customers. Northern Data AG, Bit Digital Inc., Iris Energy, Hive Digital Technologies Ltd. and Hut 8 Corp. have purchased hundreds of millions of dollars worth of Nvidia chips that have been in high demand, as so-called data center hyperscalers such as since Google and Amazon buy much of the inventory.
These companies previously performed GPU-based mining operations alongside Bitcoin mining, which uses a different type of technology. They tend to have experience running top-tier data centers suited to high-performance computing and often have pre-existing relationships with Nvidia or chip wholesalers as they were already large buyers of GPUs in previous cryptocurrency bull runs.
Nvidia cards
“Maintaining these relationships and working well with these partners is just as important as working well with Nvidia,” said Rosanne Kincaid-Smith, group chief operating officer at cryptocurrency miner Northern Data, which has a stockpile of GPUs previously used for mining of Ethereum.
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Northern Data, based in Frankfurt, operates one of the largest artificial intelligence clusters in the world. Backed by Tether Holdings, issuer of the Tether stablecoin and one of the most profitable cryptocurrency companies, Northern Data has purchased more than $800 million worth of Nvidia equipment, including H100 chips that are now in high demand for generative artificial intelligence applications. About 70% of the German cryptocurrency miner’s assets, including the H100’s predecessor A100 chips, were used to mine the Ether cryptocurrency until that token’s blockchain underwent a major software update that made the chips unusable for this purpose. The miner will deploy 20,000 H100s by the end of the summer, making it a major supplier of computing power to AI companies in Europe.
CoreWeave, which was itself a cryptocurrency miner before morphing into an AI newcomer, is a success story that Northern Data aspires to emulate. New Jersey-based CoreWeave is considering an initial public offering after raising billions of dollars from recent funding rounds to reach a $19 billion valuation. Northern Data has also been mulling an initial public offering of its cloud computing unit Taiga since it unveiled a financing package to buy more chips and boost its generative artificial intelligence offerings.
“They’re also about six months ahead of us, so I’d like to come back to this conversation in six or nine months and do another comparison,” Kincaid-Smith said. “We really intend to compete.”
It all adds up to an unexpectedly exciting time to be in the data center industry, a once-sleepy corner of the tech plumbing world that is now attracting the attention of major players from Silicon Valley to Wall Street.
“I have been in the digital infrastructure or data center industry for over 20 years,” said Brown, the Core Scientific executive. “I have never seen this rate of growth.”
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