The artificial intelligence (AI) sector is experiencing an unprecedented surge, creating an insatiable demand for data centre capacity, GPU chips, and the electricity required to power these operations. This growth has led AI companies to look towards an unexpected ally: crypto miners.

The recent AI boom has placed enormous pressure on the availability of data centre space. According to a report by CBRE Group, 83% of the data centre capacity currently under construction has already been pre-leased, predominantly by AI firms and cloud-service providers. This has left many AI companies scrambling for alternatives, and crypto-mining operations are emerging as a viable solution.

Crypto miners possess the infrastructure that AI companies desperately need. They have vast data centers equipped with high-powered GPUs and access to significant energy supplies. This makes them attractive partners for AI firms facing a critical shortage of resources.

A prime example of this growing trend is Core Scientific, which recently entered a lucrative partnership with AI startup CoreWeave. This deal is expected to generate approximately $3.5 billion in revenue over 12 years. Soon after this announcement, Bloomberg reported that CoreWeave offered to buy Core Scientific for around $1 billion. Core Scientific has identified approximately 500 megawatts of data-centre capacity for conversion to AI applications, potentially housing one of the largest GPU installations dedicated to AI globally. This capacity could power hundreds of thousands of homes annually, showcasing its immense potential.

The market has reacted positively to these developments, with shares of companies like TeraWulf Inc. jumping by 22%. Investors are optimistic about the potential synergies between the AI and crypto-mining sectors.

Building out data centres to meet AI demands comes with significant challenges, especially regarding energy provision. Constructing substations to draw electricity from the power grid can take several years. Morgan Stanley estimates that if a developer can secure a power source with a two-year lead over competitors, they might pay a premium of about 101% above current power prices, assuming a six-year economic life for GPUs. Even with a ten-year economic lifespan, a 61% premium is possible.

Miners are getting creative

Many crypto miners are now exploring the conversion of their existing facilities to meet AI needs. The energy-intensive process of mining validates blockchain transactions using specialized computers. An April update to Bitcoin's blockchain software, which halved mining rewards, has made the transition to data centres even more appealing. Morgan Stanley's analysis indicates that a quickly convertible data centre is significantly more valuable than its mining facility counterpart. The firm identified over seven gigawatts of potential retrofit sites among the top 21 public crypto-mining companies, which currently contribute about a quarter of Bitcoin's mining power.

Some crypto miners, including Northern Data AG, Bit Digital Inc., Iris Energy, Hive Digital Technologies Ltd., and Hut 8 Corp., are directly purchasing specialized hardware to sell computing power to AI clients. These companies have invested heavily in Nvidia chips, which are in high demand by data-centre hyperscalers like Google and Amazon. These firms, with experience in running GPU-based mining operations alongside Bitcoin mining, are well-suited for high-performance computing. They often have established relationships with Nvidia or its wholesalers, having been significant GPU purchasers during previous crypto bull runs.

The AI boom has brought unprecedented growth to the data centre business, a sector traditionally viewed as a quiet corner of the tech industry. This transformation has attracted the attention of major players from Silicon Valley to Wall Street. As AI continues to expand, the intersection between AI companies and crypto miners is likely to deepen, experts believe.