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Morgan Stanley initiates coverage on bitcoin miners, recommending Cipher Mining and TeraWulf as buys, while advising a sell on MARA.
The analyst characterized certain bitcoin mining operations as infrastructure assets, boosting CIFR and WULF shares while MARA underperforms.
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Key points:
- Morgan Stanley began coverage of three bitcoin miners, rating Cipher Mining and TeraWulf as Overweight while giving Marathon Digital an Underweight rating.
- The institution contends that the data centers of Cipher and TeraWulf should be regarded as infrastructure assets with reliable, long-term cash flows, instead of merely as bitcoin investments.
- Shares of CIFR and WULF experienced a significant increase on Monday.
Morgan Stanley commenced coverage of three publicly listed bitcoin mining firms on Monday, supporting two companies associated with data center leasing while adopting a more cautious view on a miner focused on bitcoin exposure.
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Analyst Stephen Byrd and his team rated Cipher Mining (CIFR) and TeraWulf (WULF) as Overweight, setting price targets of $38 and $37, respectively. On Monday, shares of CIFR rose by 12.4% to $16.51, while WULF increased by 12.8% to $16.12.
He also initiated coverage of Marathon Digital (MARA) with an Underweight rating and a target of $8. Shares of MARA saw a slight increase on Monday, reaching $8.28.
Byrd’s main argument focuses on perceiving specific bitcoin mining sites as more akin to infrastructure assets rather than speculative crypto investments. Once a mining firm has established a data center and secured a long-term lease with a reliable counterparty, he noted, the asset becomes more appealing to investors seeking consistent cash flow than to traders fixated on bitcoin price fluctuations.
“At a macro level, once a bitcoin company has a built-in data center and entered into a long-term lease with a creditworthy counterparty, that DC’s natural investor habitat is not among bitcoin investors but among infrastructure investors,” Byrd stated, emphasizing that such assets ought to be valued for “long-term, stable cash flow.”
To illustrate his point, Byrd compared these facilities to data center real estate investment trusts such as Equinix (EQIX) and Digital Realty (DLR), which he referred to as “the closest comparable companies to consider when valuing DC assets developed by bitcoin companies.” Their shares trade at over 20 times forward EBITDA, indicating that investors are prepared to pay more than $20 for every $1 of anticipated annual operating cash flow due to the scale, diversification, and consistent growth these firms provide.
Byrd does not foresee data centers established by bitcoin companies trading at similar multiples, “primarily because these data center REITs have growth potential that a single DC asset does not provide.” Nevertheless, he believes there is potential for higher valuations than what the market currently reflects.
Cipher is central to this perspective. Byrd characterized the company’s data centers as fitting for what he termed a “REIT endgame.” “We use the phrase ‘REIT endgame’ to describe our valuation approach because, ultimately, these contracted DCs should be owned by REIT-like investors that appropriately value long-term, low-risk contracted cash flows,” he explained.
In a straightforward scenario, a Cipher site that transitions from self-mining bitcoin to leasing space to a major cloud or computing client could function like a toll road. Cash flows become predictable, diminishing the emphasis on bitcoin.
TeraWulf fits a similar framework. Byrd highlighted the company’s record of establishing data center agreements and the management team’s background in power infrastructure. “TeraWulf has a strong track record of signing agreements with data center customers, and the management team has extensive experience in building a wide range of power infrastructure assets,” he noted.
He anticipates the firm will convert sites lacking bitcoin-to-data-center contracts at a present value of around $8 per watt. His base case presumes the company succeeds in roughly 50% of its planned annual data center expansion of 250 megawatts per year from 2028 to 2032. In a more favorable scenario, he predicts a success rate of 75%.
The sentiment shifted regarding Marathon Digital. Byrd asserted that the company presents “lower potential upside driven by bitcoin-to-DC conversions.” He mentioned Marathon’s hybrid strategy, which merges mining with data center aspirations rather than completely repurposing locations, along with its intention to maximize exposure to bitcoin’s price by issuing convertible notes and utilizing the proceeds to acquire bitcoin.
Marathon’s limited experience in hosting data centers also influenced this perspective. “For MARA, bitcoin mining economics are the dominant driver of the stock’s value,” Byrd noted.
This focus entails risk. “Fundamentally, we see significant risks to profitability of bitcoin mining, both in the near and long terms,” Byrd remarked, observing that “the historical ROIC of the bitcoin mining business has been unattractive.”
The coverage comes as investors consider whether bitcoin miners should transition into power and computing landlords. Morgan Stanley’s response is selective. Where long-term leases and infrastructure discipline are established, Byrd identifies value. In scenarios where mining remains the primary business, he perceives fewer grounds to anticipate substantial gains.
