Cloud provider CoreWeave's move to buy data center owner Core Scientific in a $9 billion all-stock deal is expected to save billions of dollars in real estate costs in a tight data center market that is grappling with record demand for artificial intelligence capacity.
The purchase puts CoreWeave, backed by Nvidia and Microsoft, in the ownership seat for about 1.3 gigawatts of power across Austin, Texas-based Core Scientific's data center portfolio comprising 10 U.S. locations with more power available for expansion, according to a statement from CoreWeave. For perspective, 1 gigawatt of power can power about 750,000 households.
The timing of the acquisition comes as AI and high-performance computing companies are vying for electricity and real estate. In CBRE's latest data center research, the real estate services firm said AI adoption and hyperscale demand had the global data center market seeing record leasing activity in the first quarter, pushing vacancy rates to new historic lows, particularly in North America.
Those historic lows have led cloud providers to expand into emerging markets, CBRE said.
For CoreWeave, the acquisition is expected to immediately cut over $10 billion of cumulative future lease costs for existing contracts it has for Core Scientific's sites during the next 12 years, according to the statement. This includes CoreWeave's expansion at Core Scientific's campus in Denton, Texas, a city about 40 miles northwest of downtown Dallas, that was announced in February.
Along with eliminating the lease costs, CoreWeave expects the deal to add $500 million in annual savings by the end of 2027 through streamlined operations, executives said.
By owning Core Scientific's data center infrastructure, CoreWeave will be able to "significantly enhance operating efficiency and de-risk future expansion," said CoreWeave CEO, Chairman and Co-Founder Michael Intrator in the statement.
"Owning this foundational layer of our platform will enhance our performance and expertise as we continue helping customers unleash AI's full potential," Intrator added.
CoreWeave did not respond to an email request for comment from CoStar News. A Core Scientific spokesperson declined to comment to CoStar News outside of the statement.
Crypto mining
Core Scientific's Denton campus was originally built for bitcoin mining but has been converted to support AI-related workloads. CoreWeave's proposed purchase of Core Scientific negates the contracts it had for power at some of Core Scientific's locations, giving it ownership of the properties instead, according to an investor presentation.
The deal also gives CoreWeave the potential to repurpose or divest Core Scientific's crypto mining business over the medium term, the presentation said.
The deal that is expected to close in the fourth quarter offers a blueprint to cloud providers on how they might team with a data center infrastructure firm on massive projects in the future, said Michael Rareshide, a partner at Site Selection Group.
"This is a logical play. CoreWeave and Core Scientific seem to have worked very well together, and now they are coming together in this $9 billion deal," Rareshide told CoStar News. "This gives them the capacity they need, and it seems like the easiest way to get it was to buy it."
Rareshide is not directly involved with either company but has been in the data center industry for decades and leads Site Selection Group's data center platform.
"I think we're going to see some of the major groups aligning themselves with partners to provide needed AI capacity," Rareshide added.
Cushman & Wakefield Vice Chair Bo Bond, who handles data center business nationally for the brokerage, said strategic acquisitions have been part of the data center business for years — and he expects it to continue into the future.
"Real estate is a critical asset for these companies," Bond told CoStar News. "This has happened, is happening and will continue to happen."
The deal shares a similar strategy in which Equinix bought the Dallas Infomart, in which it was the property's largest tenant, in an $800 million deal, Bond said. Similarly, Equinix has also previously acquired Verizon data centers to secure good real estate, he added.