Investment bank Compass Point downgraded MARA Holdings (NYSE:MARA) to Sell from Neutral on Tuesday, citing unsustainable cash burn.
“There's better ways to get BTC beta,” analysts wrote, adding that Marathon's hash price, now below 5.5 cents, is a clear indication of declining profitability. At present operational levels, Compass Point estimates the company is facing significant cash burn, which could result in shareholder dilution.
Accordingly, the bank slashed MARA's price target to $9.50 from $25, suggesting more than 25% downside from the current price.
Marathon's primary focus is on bitcoin mining, a process that generates BTC in return for vast amounts of computing power. However, as mining rewards diminish and energy costs remain elevated, the economics of this business model have come under increasing pressure.
Moreover, Compass Point maintains that MARA trades at a premium to the price of bitcoin itself, which is a less favorable setup for investors seeking exposure to the asset.
This downgrade also comes amid a broader slump in high-performance computing (HPC) and AI infrastructure plays. Peer companies like Core Scientific (NYSE:CORZ) and TeraWulf (NASDAQ:WULF) have also posted dismal performance year-to-date as investor enthusiasm around AI has cooled. Concerns over customer concentration, pricing risks, and slowed capital expenditures from giants like Microsoft (NASDAQ:MSFT) have dragged valuations lower, with HPC sector multiples dropping from as high as 15x last year to around 5x currently.
However, Compass Point highlighted potential long-term tailwinds for the sector. They pointed out the surging demand for AI infrastructure and the ensuing commitments to capex from cloud providers, which are likely to drive new growth opportunities. But for the time being, they contend that Marathon's fundamentals remain too frail to warrant its market valuation.
MARA is set to report earnings on Monday, May 8, after the market close. The stock has taken a hit this year, with a 25% decline, while a bitcoin mining ETF, WGMI, is down by 37% over the same period.
