JPMorgan identifies cryptocurrency miners with favorable long-term power contracts as acquisition targets.

Hyperscalers and artificial intelligence firms are exploring different alternatives to securing their energy needs, and this may make bitcoin mining companies with attractive power contracts appealing acquisition targets, according to JPMorgan. The bank defines a hyperscaler as a large-scale data center specializing in delivering huge amounts of computing power. Power demand from these firms may make bitcoin mining companies potential takeover targets, the report said.

Mergers and acquisitions are heating up in the mining sector following the recent halving. On Tuesday, shares of Core Scientific surged higher after cloud computing firm CoreWeave signed a 200 megawatts (MW) artificial intelligence deal with the bitcoin miner and was also reported to have made an all-cash offer to buy the company. Meanwhile, another large bitcoin miner, Riot Platforms, made a hostile offer to buy out peer Bitfarms last month. JPMorgan said this deal with CoreWeave validates and may accelerate the mining sector's involvement in high-performance computing (HPC).

The bank estimates that U.S. listed bitcoin miners draw up to 5 gigawatts (GW) of power and have access to an additional 2.5 GW, "which makes them a potentially attractive target." Within the bank's coverage, the Core Scientific news is most impactful to overweight-rated Iris Energy, which JPMorgan said was early to embrace HPC and has the rights to develop over 2 gigawatts of power. JPMorgan said the deal could raise the "valuation floor for sub-scale mining operators, as a new class of buyers (Hyperscalers) has emerged."

Furthermore, bitcoin miners are under financial pressure to exit the market following the recent halving event and so may be more receptive to a deal, the report added. JPMorgan suggested the deal could help "rationalize the bitcoin network" by moving power capacity away from the miners, which would improve the profits of the remaining operators. Broker Bernstein said that Riot Platforms was the best positioned to attempt to consolidate the mining sector, as the miner has the financial capacity for deal-making.