Concentrated Contracts Will Threaten Data Center Stability Yet Uncover Upside

Key Takeaways

• High client and revenue concentration plus heavy capital needs expose the company to execution risks, margin pressure, and profitability threats if any major deal falters.
  
• Transition away from mining and reliance on favorable energy contracts create vulnerability to market, regulatory, and operational headwinds that could hamper utilization and growth.
  
• Heavy reliance on a single key client and unproven AI infrastructure demand create major revenue risks, while execution and diversification challenges threaten sustained profitability and margin stability.

Catalysts

Provides digital asset mining services in the United States.

• While Core Scientific is seeing strong forward demand from both hyperscale and large enterprise customers for high-density AI infrastructure, its heavy operational reliance on a small handful of contracts-particularly the take-or-pay CoreWeave deal-means any loss of a major client or execution risk could cause pronounced revenue volatility and concentration risk for years to come.
  
• Although the company is riding a global wave of AI adoption and digital transformation that should buttress its addressable market and revenue growth, the build-out of new capacity and site development remains highly capital-intensive, and the company's light balance sheet could quickly become strained if project returns decline or if cost overruns materialize, compressing margins and threatening profitability.
  
• Despite ongoing institutionalization and regulatory clarity in digital assets and datacenter infrastructure, the company's transition away from Bitcoin mining leaves it exposed to execution risk during this shift-any delays, failed ramp-ups, or unexpected headwinds in converting mining sites or winning non-CoreWeave tenants could lower utilization rates, negatively impacting revenue and EBITDA growth targets.
  
• While sustainable energy strategies and power cost optimization can provide competitive advantages in today's environment, Core Scientific remains highly dependent on securing favorable long-term energy contracts. Shifts in regional electricity policy, supply constraints, or regulatory changes targeting data center power use could increase costs and reduce net margins over time.
  
• Even as secular demand for compute capacity is set to accelerate, increasing tariffs, geopolitical factors, and potential regulatory obstacles around energy usage and cryptocurrencies in the U.S. and elsewhere could drive up capital and operating expenses or curtail growth, threatening the pace of expansion and the company's ability to convert pipeline opportunities into durable, high-ROIC revenue streams.

Core Scientific Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Core Scientific compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Core Scientific's revenue will grow by 56.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -170.8% today to 2.5% in 3 years time.
• The bearish analysts expect earnings to reach $33.1 million (and earnings per share of $0.07) by about August 2028, up from $-595.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 221.0x on those 2028 earnings, up from -7.0x today. This future PE is greater than the current PE for the US Software industry at 35.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.21%, as per the Simply Wall St company report.

Core Scientific Future Earnings Per Share Growth

Risks

• Core Scientific faces significant customer concentration risk with CoreWeave as the foundational client for its datacenter transition, and any deterioration in CoreWeave's financial health or demand could sharply impact revenues and future earnings.
  
• While management is working to diversify the customer base, as of now no new major contracts outside CoreWeave have been signed, raising the risk that revenue growth targets could be missed if pipeline opportunities fail to materialize, negatively affecting long-term topline growth.
  
• The company's long-term profitability and cash flow remain vulnerable if AI infrastructure demand softens or if macro headwinds delay large enterprise adoption, given the currently early-stage, unproven nature of this secular growth engine for Core Scientific.
  
• Execution risk persists in scaling up datacenter capacity, particularly amid rising CapEx costs due to tariffs and supply chain constraints; failing to keep projects on schedule or within budget would add pressure to net margins and earnings stability.
  
• The legacy bitcoin mining business is being wound down but still produces volatile results, and with ongoing exposure to bitcoin price swings and no guarantee of fully replacing this revenue with stable colocation income, overall revenue and margin predictability may remain impaired for several years.

Valuation

• The assumed bearish price target for Core Scientific is $15.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Core Scientific's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $33.1 million, and it would be trading on a PE ratio of 221.0x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of $13.55, the bearish analyst price target of $15.0 is 9.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.