Investment Bank Compass Point downgraded Mara Holdings (Mara) to a selling rating from Neutral on Tuesday, citing unsustainable cash burning.
“There’s a better way to get a BTC beta,” the analyst wrote in a research note, pointing to the hash price for a marathon, which is currently under 5.5 cents, as a signal of a decline in profitability. At the current operating level, we estimate that Compass Point is facing significant cash burns that could lead to shareholder dilution.
The bank has also reduced Mara’s price target from $25 to $9.50, suggesting a downside of more than 25% from the current price of nearly $13.
Marathon business relies on Bitcoin mining, the process of acquiring BTC in exchange for computing power. However, as mining rewards shrink and energy costs continue, the economics of business models are under pressure. Meanwhile, Compass Points claims that marathons are traded at the price of Bitcoin itself and at the premium. This is an undesirable setup for investors seeking exposure to their assets.
Downgrades occur amid a wider decline in high-performance computing (HPC) and AI infrastructure play. Peer companies Core Core Scientific (Corz) and Terawulf (Wulf) underestimate the year as investors’ enthusiasm around AI is cooled. Concerns about customer concentration, pricing risks and slowing capital expenditures from giants like Microsoft have lowered ratings, with multiples in the HPC sector falling from 15 times last year to about five times as much as it is now.
Still, Compass Point has looked at potential tailwinds for the sector in the long run, including increased demand for AI infrastructure from cloud providers and CAPEX commitments. For now, however, they argue that the marathon’s foundations remain too weak to justify its market valuation.
Mara reported the revenue from the Market Post Office on May 8th. The stock price fell 25% this year, while the WGMI of Bitcoin Mining ETFs fell 37%.
Update (May 6, 16:27 UTC): Update heading and add Mara’s revenue time.
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