Bitcoin miners pivot to AI, but may be overvalued: JPMorgan

JPMorgan upgraded Cipher and CleanSpark, and cut targets for MARA, RIOT due to the increased risk of shareholder dilution.

Summary

• JPMorgan cut targets for MARA and RIOT due to dilution of shares.
• Mining firms have up to 33% more shares than accounted for.
• Cipher and CleanSpark are in a strong position on disciplined issuance.

Bitcoin miners are increasingly diversifying their operations from hashrate to high-performance computing. This targeting of AI compute demand did not go unnoticed on Wall Street. In a report published on Monday, November 24, JPMorgan noted this pivot to AI, but also highlighted risks for several firms in the industry.

The investment bank also announced that it was upgrading its ratings for Cipher Mining and CleanSpark from “Neutral” to “Overweight”. The investment giant also raised the price target for Cipher from $12 to $18, while maintaining CleanSpark at $14.

The change in outlook was mainly due to Bitcoin (BTC) miners pivoting to AI use cases. Notably, Cipher Mining plans to expand its infrastructure to 1.7 GW by 2026, largely to support high-performance computing for AI services. In addition, CleanSpark recently expanded its Texas datacenter with 200 MW, largely dedicated to AI.

Bitcoin miners face risks, despite AI demand

Still, JPMorgan highlighted risks faced by some miners, especially regarding shareholder dilution. Notably, increased capital needs push these firms to raise funds through at-the-market offerings, which dilutes investors.

The markets are also currently underreporting dilution, the report argues.

“On average, our diluted share count figures that underpin our price targets are 20%-33% higher than the share count reflected in Bloomberg,” the report wrote, adding that this could mean that these firms are overvalued.

Due to concerns over shareholder dilution, JPMorgan has cut its estimates for Marathon Digital (MARA) from $20 to $13, and Riot Platforms, from $19 to $17.

Source