Marathon Digital Downgraded to Sell at Compass Point on Unsustainable Cash Burn

Investment bank Compass Point cut its rating on MARA Holdings (MARA) to sell from neutral on Tuesday, citing volatile spending.

“There are more efficient ways to obtain BTC beta,” the analysts noted in their research, pointing to Marathon’s current hash price of less than 5.5 cents as a sign of declining profitability. Compass Point believes that at current operating levels, the company faces significant cash burn that could lead to shareholder dilution.

The bank also lowered its target price on MARA from $25 to $9.50, suggesting potential for a more than 25% downside from the current price of around $13.

Marathon’s business is centered around Bitcoin mining, a process that earns BTC in exchange for computing power. However, with mining rewards declining and electricity costs continuing to rise, the economics of the business model have come under pressure. At the same time, Compass Point argues that Marathon is trading at a premium to the price of 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 from giants like Microsoft have driven down valuations, with HPC sector multiples falling from 15x last year to around 5x now.

However, Compass Point noted potential positives for the sector in the long term, including growing demand for AI infrastructure and capital expenditure commitments from cloud providers. However, for now, they argue that Marathon’s fundamentals are too weak to justify its market valuation.

MARA reports earnings after the market closes on May 8. The stock is down 25% this year, while the Bitcoin mining ETF, WGMI, is down 37%.

UPDATE (May 6, 16:27 UTC): Updated headlines and added MARA earnings release times.

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Source: cryptonews.net