Core Scientific, CoreWeave merger fail highlights AI valuation optimism
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Core Scientific shareholders on Thursday rejected a $9 billion takeover bid from CoreWeave, which had warned that it wouldn't sweeten the pot.
Why it matters: The merger failure highlights unbridled AI valuation optimism, despite intensifying bubble talk.
Catch up quick: CoreWeave first offered to buy Core Scientific in early 2024 for $1 billion, but was immediately rebuffed.
- Talks resumed this past summer, with the $9 billion all-stock agreement signed in July.
- Core Scientific's largest outside shareholder, Two Seas Capital, publicly signaled its opposition. So did proxy firms Glass Lewis and ISS.
Zoom in: The problem wasn't the premium at the time of announcement, which worked out to around 66%. Nor the merger's strategic rationale, given that the two companies already work together on providing AI data center capacity.
- Instead, Core Scientific shareholders may have been unable to accept a deal at almost any price, instead putting their faith in the infinite hockey stick.
- Sure, both companies lose gobs of money. But so does OpenAI, and it's reportedly discussing a 2027 IPO at a $1 trillion valuation. Or bankers are telling reporters that OpenAI is discussing a 2027 IPO at a $1 trillion valuation — which still speaks to the same point.
- If CoreWeave was willing to bump its Core Scientific offer by 9x between 2024 and 2025, what might it consider in a few years from now? Particularly if OpenAI is in public waters, lifting all boats.
The bottom line: There are pockets of AI-focused M&A, particularly when the acquisition targets are pre-GPT companies or nascent startups that get overwhelmed by Zuck bucks.
- But the real floodgates may not open until there is some sort of correction, or consensus that the peak is at hand.
