• Bernstein said bitcoin miners have upside from the power portfolios they control.
• Miners that focus on an active power strategy and efficiency are more likely to see a valuation rerating, the report said.
• Large miners remain focused on bitcoin production and Riot Platforms, CleanSpark and Iren are best positioned to grow market share, the broker said.

Bitcoin (BTC) miners have significant potential upside from the power portfolios that they control, broker Bernstein said in a research report on Wednesday.

“We believe bitcoin miners by focusing on an active power strategy and pushing the frontiers of power efficiency can make a stronger case for a valuation re-rating,” analysts led by Gautam Chhugani wrote.

Investors can profit by valuing the companies as “efficient power shells with data center capabilities,” as opposed to just bitcoin mining operations, the report said. Bernstein noted that miners trade at around a 90% discount to general data center valuations.

Read more: Bitcoin Miner Marathon Buys $100M BTC, Will Once Again Adopt 'Full HODL' Strategy

The bitcoin mining sector has rerated in recent months after Core Scientific (CORZ) inked a 12-year artificial intelligence (AI) deal with cloud computing firm CoreWeave. The market is pricing in the potential AI and high-performance computing (HPC) opportunity and the upside stemming from alternative and more accretive use cases for bitcoin mining sites.

Large miners remain focused on growing bitcoin production and their respective hashrates, the broker noted, and Riot Platforms (RIOT), CleanSpark (CLSK) and Iren (IREN) are best positioned to expand market share.

There is also headroom in power efficiency and uptime, the note said, and miners can benefit from extracting more hashrate from their existing portfolios by upgrading their hardware to the latest generations of ASICs. The hashrate , a measure of computing power, is a proxy for competition in the industry and mining difficulty.

Iren, which used to be known as Iris Energy, and CleanSpark rate well in terms of power efficiency and uptime, and Core Scientific ranks highly with regards to data center uptime, Bernstein said. Riot’s efficiency should improve as it energizes its large power sites and Marathon Digital’s (MARA) efficiency should recover as it builds out its self-mining portfolio.

“Customization and innovation in mining systems and software can further boost efficiency,” the note said.

The broker has an outperform rating on CleanSpark, Core Scientific, Iren and Riot Platforms, and a market perform rating on Marathon Digital.

Read more: Bitcoin Miners With Attractive Power Contracts Are Potential M&A Targets, JPMorgan Says

UPDATE (July 31, 10:08 UTC): Iris Energy changed to Iren throughout the story.