Marathon Digital Downgraded to Sell at Compass Point on Unsustainable Cash Burn
Investment bank Compass Point cut its rating on MARA Holdings (MARA) shares to “sell” from “neutral” on Tuesday, citing volatile cash burn.
“There are better ways to acquire BTC beta,” the analysts wrote in a research note, citing Marathon’s hash price, currently below 5.5 cents, as a sign of declining profitability. Compass Point suggests that at current operating levels, the company is facing significant cash burn that could lead to shareholder dilution.
The bank also cut its price target on MARA from $25 to $9.50, indicating potential for a more than 25% downside from the current price of around $13.
Marathon's business is focused on Bitcoin mining, a process that yields BTC in exchange for computing power. However, with mining rewards falling and energy costs rising, the business's economic model has come under pressure. Meanwhile, Compass Point says Marathon is trading at a premium to Bitcoin itself, a bad situation for investors looking to gain exposure to the asset.
The downgrade also comes amid a general slowdown in high-performance computing (HPC) and AI infrastructure. Peers Core Scientific (CORZ) and TeraWulf (WULF) have also performed poorly year-to-date as investor interest in AI has waned. Concerns about customer concentration, pricing risks, and a slowdown in capital spending by giants like Microsoft have driven valuations down, while HPC sector multiples have fallen from 15x last year to around 5x now.
However, Compass Point noted potential positive factors for the sector in the long term, including growing demand for AI infrastructure and capital expenditure commitments from cloud providers. But for now, they argue that Marathon’s fundamentals remain too weak to justify its market valuation.
MARA reports earnings after the market closes on May 8. The stock has fallen 25% this year, while the Bitcoin mining ETF, WGMI, has fallen 37%.
UPDATE (May 6, 16:27 UTC): Updated headlines and added MARA earnings release times.
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Source: cryptonews.net
