Compass Point downgraded MARA Holdings (MARA) from neutral to sell on Tuesday, slashing its price target to $9.50 from $25, citing unsustainable cash burn and mounting risks of dilution.
In a research note, the investment bank warned that Marathon is facing significant challenges due to its declining hash price, now below 5.5 cents per terahash, which signals decreasing profitability. With current operational levels, Compass Point believes the company will continue to burn cash at a pace that could ultimately lead to shareholder dilution.
The downgrade also highlights Marathon’s reliance on bitcoin mining, a business model that has come under strain as mining rewards continue to shrink and energy costs remain high. Analysts at Compass Point noted that Marathon trades at a premium to bitcoin, which could be unfavorable for investors seeking direct exposure to the cryptocurrency.
Additionally, the downgrade occurs amid a broader downturn in the high-performance computing (HPC) and AI infrastructure sectors. Peer companies like Core Scientific (CORZ) and TeraWulf (WULF) have similarly underperformed this year, as enthusiasm around AI has cooled. Slower capital expenditures from major players like Microsoft, along with concerns about customer concentration and pricing risks, have contributed to a drop in sector valuations, with HPC multiples falling from 15x last year to around 5x currently.
Despite these challenges, Compass Point acknowledged potential long-term tailwinds for the industry, such as rising demand for AI infrastructure and increasing capital expenditure commitments from cloud providers. However, they concluded that, for the time being, Marathon’s fundamentals remain too weak to justify its current market valuation.
MARA is set to report its earnings on May 8, after market close. The stock has fallen by 25% this year, while the bitcoin mining ETF (WGMI) has declined by 37%.
