Artificial Intelligence sews opportunity for CoreWeave (NASDAQ: CRWV)

This year’s IPO darling CoreWeave (NASDAQ: CRWV), a major data center owner-operator, continues to grow amid soaring demand for artificial intelligence infrastructure.

The company announced this week that it’s buying Core Scientific, another data-center owner, for $9 billion in stock.

As for AI-related infrastructure demand, total investment in upcoming and under-construction data centers has skyrocketed to $750 billion, according to Bernstein analyst Alex Wang. And much of the activity at those centers will be AI-related. AI investments totaled $279.2 billion last year and are expected to hit $1.81 trillion by 2030, according to Grand View Research.

That explains CoreWeave’s purchase of Core Scientific, which would add nine data centers to CoreWeave’s current stable of 33. CoreWeave would add 1.3 gigawatts of data center capacity in the U.S.

Valuable CoreWeave shares

It’s able to pay for the Core Scientific acquisition with its stock because the shares have soared more than 3 ½ times from the IPO price of March 27. That obviously allows CoreWeave to do the purchase without borrowing.

But its stock has petered out in the past month amid concern about a potential bubble in the data-center sector. It has dropped 6.3% during that period and lost 12% since the Core Scientific transaction was announced July 7.

An interesting commonality between the two companies is that both were originally oriented toward cryptocurrency mining. The opportunities in AI are clearly a lot bigger.

Crypto mining still accounted for 89% of Core Scientific’s revenue in the first quarter. CoreWeave will likely dump that business or convert it for AI workloads, analysts say. The deal could inspire more crypto miners to switch to AI. Miners’ power contracts will be appealing to AI firms.

Big competition, big allies

The deal will help CoreWeave compete with cloud service providers Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL) and data center owners Equinix (NASDAQ: EQIX) and Digital Realty (NASDAQ: DLR). CoreWeave will save $10 billion in future rent payments that it would have paid for leasing some of Core Scientific’s sites.

CoreWeave has laid claim some big-time customers, including Microsoft (NASDAQ: MSFT), Meta Platforms (NASDAQ: META), IBM (NYSE: IBM) and OpenAI. Microsoft accounted for 62% of its revenue last year. On one hand, who wouldn’t want Microsoft as their No. 1 client. On the other hand, such reliance on a single customer can be dangerous.

CoreWeave has a close relationship with another storied tech name too: Nvidia (NASDAQ: NVDA). The semiconductor king has a major stake in the company and provides much of its graphic processing units.

So clearly the AI boom provides great opportunity for CoreWeave, creating a need for data infrastructure. However, keep in mind that it’s in a crowded space with strong competitors.