Investment bank Compass Point has issued a downgrade for MARA Holdings (MARA), shifting the company’s rating from neutral to sell. This decision has been prompted by concerns regarding the sustainability of the company’s cash burn, which analysts believe poses significant risks for investors.
In their research note, analysts at Compass Point highlighted that there are more advantageous ways to gain exposure to Bitcoin (BTC) than investing in Marathon at its current levels. Notably, Marathon’s hash price has dropped below 5.5 cents, indicating declining profitability amidst increasing operational costs.
With the current trajectory of cash burn, Compass Point warns that MARA could face shareholder dilution. In light of these factors, the bank has reduced its price target for MARA from $25 to $9.50, suggesting that the stock could experience more than a 25% decline from its recent trading price near $13.
Marathon’s core business model relies heavily on Bitcoin mining, whereby the company earns BTC through computing power. However, this model’s viability is increasingly under threat due to steadily shrinking mining rewards and persisting high energy costs. Compounding these challenges, Compass Point argues that Marathon’s stock trades at a premium relative to Bitcoin itself, creating an unfavorable investment landscape for those seeking direct exposure to the cryptocurrency.
The downgrade comes at a time when the broader high-performance computing (HPC) and AI infrastructure sectors are also witnessing a downturn. Peer companies such as Core Scientific (CORZ) and TeraWulf (WULF) have similarly underperformed in 2023 as investor interest in AI has waned. Key concerns affecting these valuations include customer concentration risks and reduced capital expenditures from major players like Microsoft.
Despite presenting a bleak outlook for Marathon in the short term, Compass Point does note potential long-term tailwinds for the sector. There is rising demand for AI infrastructure and capital expenditure commitments from cloud providers that could bolster future growth. However, for the moment, analysts maintain that Marathon’s fundamentals appear too weak to substantiate its current market valuation.
Looking ahead, MARA is set to report its earnings on May 8, post-market. The stock has already experienced a 25% decline this year, while a bitcoin mining ETF, WGMI, has fallen by 37%.
UPDATE (May 6, 16:27 UTC): Updates headlines and adds MARA’s earnings time.
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