AI gold rush sparks backlash against Core Scientific acquisition

The acquisition of data center infrastructure provider Core Scientific by AI cloud provider CoreWeave for $9 billion, announced in July, was in a fragile state Tuesday after proxy advisory firm Institutional Shareholder Services (ISS) recommended that shareholders of Core Scientific reject the deal.

Two Seas Capital, an alternative investment management firm and one of the largest shareholders of Core Scientific, released a statement soon after, applauding ISS’s recommendation.

Sina Toussi, the firm’s founder and chief investment officer, stated in a release, “since the proposed merger was announced, unprecedented investment in the AI infrastructure build-out has continued, with companies announcing significant HPC hosting and other similar agreements seemingly every week.”

Valuations across the sector, he said, “have risen dramatically, but Core Scientific has been left behind due to its association with CoreWeave’s volatile and underperforming stock. We, as Core Scientific shareholders, have been unable to participate in one of the most incredible growth opportunities in the history of the capital markets.”

Revised offer ruled out

Toussi added that Two Seas Capital believes that Core Scientific can do much better than what he described as “this flawed transaction,” and said, “we are pleased that ISS agrees.”

According to the release, ISS said in its report about the acquisition that the Core Scientific board conducted “an exclusive process on a short timeline, and it did not obtain downside protection against the volatility of the acquisition currency, which was still subject to a lockup. Thus, it is difficult to conclude that the process was run in a manner that maximized the likelihood of securing the best available terms for shareholders, or that the process in fact did so.”

Meanwhile, in a release issued last week, CoreWeave stated, “it has been unequivocal — to Core Scientific and publicly — that we will not modify our offer. Our offer is best and final.”

Alvin Nguyen, senior analyst at Forrester Research, said what happens next with the overall data center market “depends on when AI demand slows down (when the AI bubble bursts).”

He added, “if AI demand continues, prices continue to go up, and data centers change in terms of preferred locations (cooler climates, access to water, lots of space, more remote), use of microgrids/energy production, expect [major] players to continue to dominate.”

However, said Nguyen, “if that slowdown is soon, then prices will drop, and the key players will need to either unload property or hold onto them until AI demand builds back up.”

Generational shift occurring

Asked what the overall effect of AI will be on CIOs in need of data center capacity, he said, “the new AI mega-factories alter data center placement: you don’t put them near existing communities because they demand too much power, water, land, you build them somewhere remote, and communities will pop up around them.”

Smaller data centers, said Nguyen, “will still consume power and water in contention with their neighbors (industrial, commercial, and residential), potential limiting their access or causing costs to rise. CIOs should evaluate the trade offs/ROI of not just competing for data center services, but also for being located near a new data center.”

Paul Nicholson, research vice president, cloud and data center networks, IDC, said, “the consolidation of data center capacity is being driven by a generational shift with AI optimized workloads dominating, with additional trends toward hybrid, and more sustainable energy-optimized infrastructure to meet demand.”

CIOs, hyperscalers, cloud buyers, and developers, he said, “must adapt to a landscape defined by capacity constraints, regulatory pressures, and the need for cost-effective, high-performance AI solutions. The CIO winners will be those whose plans modernize, diversify, and strategically partner to navigate this new era.”

Nicholson observed, “while capacity constraints may occur in multiple technology areas, there is also competition driving choice and options for CIOs from those vendors who are acquiring other data center operators and capacity.”

He pointed out, “as CIOs’ IT and AI plans move from more ad-hoc to mature enterprise AI strategies, the CIO will be developing an AI-ready tech stack that will include multiple data centers and with interconnection with many applications and APIs.”

This article originally appeared on Network World.