Morgan Stanley initiated protection of three publicly traded bitcoin BTC$70,151.59 mining corporations on Monday, backing two names tied to information heart leasing whereas taking a extra cautious stance on a miner targeted on bitcoin publicity.
Analyst Stephen Byrd and his workforce began protection of Cipher Mining (CIFR) and TeraWulf (WULF) with Chubby scores and set worth targets of $38 and $37, respectively. Shares of CIFR are increased by 12.4% Monday to $16.51, whereas WULF is forward 12.8% to $16.12.
He additionally initiated protection of Marathon Digital (MARA) with an Underweight score and an $8 goal. Shares of MARA are marginally increased on Monday at $8.28.
Byrd’s core argument rests on viewing sure bitcoin mining websites much less as crypto bets and extra as infrastructure belongings. As soon as a mining firm has constructed an information heart and signed a long-term lease with a powerful counterparty, he wrote, the asset is healthier suited to buyers who worth regular money circulation than to merchants targeted on bitcoin worth swings.
“At a macro stage, as soon as a bitcoin firm has a built-in information heart and entered right into a long-term lease with a creditworthy counterparty, that DC’s pure investor habitat shouldn’t be amongst bitcoin buyers however amongst infrastructure buyers,” Byrd wrote, including that such belongings ought to be valued for “long-term, steady money circulation.”
To make the purpose concrete, Byrd in contrast these amenities to information heart actual property funding trusts comparable to Equinix (EQIX) and Digital Realty (DLR), which he described as “the closest comparable corporations to contemplate when valuing DC belongings developed by bitcoin corporations.” Their shares commerce at greater than 20 occasions ahead EBITDA, which means buyers are keen to pay over $20 for each $1 of anticipated annual working money circulation as a result of these companies provide scale, diversification and regular progress.
Byrd doesn’t count on information facilities developed by bitcoin corporations to commerce at related ranges, “primarily as a result of these information heart REITs have progress potential {that a} single DC asset doesn’t present.” Nonetheless, he sees room for increased valuations than the market at the moment assigns.
Cipher sits on the heart of that view. Byrd described the corporate’s information facilities as appropriate for what he referred to as a “REIT endgame.” “We use the phrase ‘REIT endgame’ to explain our valuation method as a result of, in the end, these contracted DCs ought to be owned by REIT-like buyers that appropriately worth long-term, low-risk contracted money flows,” he wrote.
In a easy situation, a Cipher website that shifts from self-mining bitcoin to leasing house to a big cloud or computing buyer may resemble a toll street. Money flows develop into predictable. The function of bitcoin fades.
TeraWulf earned an identical framework. Byrd pointed to the corporate’s historical past of signing information heart agreements and to administration’s background in energy infrastructure. “TeraWulf has a powerful observe file of signing agreements with information heart clients, and the administration workforce has intensive expertise in constructing a variety of energy infrastructure belongings,” he wrote.
He expects the agency to transform websites with out bitcoin-to-data-center contracts at a gift worth of about $8 per watt. His base case assumes the corporate succeeds in roughly half of its deliberate annual information heart progress of 250 megawatts per 12 months over 2028-2032. In a extra optimistic situation, he assumes that the success fee rises to 75%.
The tone shifted with Marathon Digital. Byrd argued that the corporate presents “decrease potential upside pushed by bitcoin-to-DC conversions.” He cited Marathon’s hybrid technique, which mixes mining with information heart ambitions reasonably than absolutely repurposing websites, together with its concentrate on maximizing publicity to bitcoin’s worth, together with issuing convertible notes and utilizing the proceeds to purchase bitcoin.
Marathon’s restricted historical past of internet hosting information facilities additionally weighed on the view. “For MARA, bitcoin mining economics are the dominant driver of the inventory’s worth,” Byrd wrote.
That focus carries danger. “Essentially, we see vital dangers to profitability of bitcoin mining, each within the close to and lengthy phrases,” Byrd added, noting that “the historic ROIC of the bitcoin mining enterprise has been unattractive.”
The protection lands as buyers debate whether or not bitcoin miners ought to evolve into energy and computing landlords. Morgan Stanley’s reply is selective. The place long-term leases and infrastructure self-discipline take maintain, Byrd sees worth. The place mining stays the core enterprise, he sees fewer causes to count on outsized features.
