Key Points
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Iren has tumbled by more than 70% from its all-time high despite strong financing, project validations, and rising megawatt prices.
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Iren’s AI cloud revenue almost tripled sequentially as growth starts to compound.
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The company’s 35-gigawatt development pipeline reveals its substantial potential, even though not all of those gigawatts will be brought online.
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Iren (NASDAQ: IREN) looks like a formidable AI stock to buy. Good stocks do not go down forever, and Iren has managed to improve its fundamentals despite dropping more than 70% from its all-time high. Recent earnings confirmed the bullish thesis, and broader neocloud trends have added fuel to the long-term picture.
Megawatts are getting more expensive
Iren’s business model involves building AI data centers, supplying infrastructure and cloud platforms, and renting out megawatts to hyperscalers and enterprises. As megawatts become more valuable, Iren’s potential annual recurring revenue increases, and the company’s recent earnings report hinted at this potential.
AI cloud revenue almost tripled sequentially to $200 million, which is a small slice of Iren’s $20.3 billion revenue backlog. Operating annual recurring revenue has just crossed $1 billion, and the company intends to reach $4 billion by the end of January.
Notably, Iren secured a five-year deal at $22 million per megawatt and landed a short-term deal at $40 million per megawatt. Both of those figures are much higher than its landmark deal with Microsoft last year, which came in at $9.7 million per megawatt.
The value of a megawatt has more than doubled in less than one year. If that momentum continues, Iren will end up with far more lucrative deals in 2027. Leadership has also been very intentional about not rushing to sign new deals, which has proven to be the right call with each passing day.
Financing isn’t an issue anymore
Although October featured plenty of talk about neoclouds having less access to financing and being stuck with high interest rates, those issues don’t concern Iren. Even the shareholder dilution concerns have faded after the company laid out its plan to raise capital.
Prepayments do the bulk of the work. The prepayment under the five-year deal, valuing each megawatt at $22 million, was sufficient to cover 90% of the associated GPU capital expenditures. That doesn’t even include GPU financing, and Iren also has the flexibility to borrow against its data centers in the future.
Iren has no issue with raising the amount of funds it needs. This was a major bearish concern multiple months ago, especially stock dilution. Even though Iren has addressed this issue and strengthened its financial position, the growth stock remains well below its all-time highs. This mismatch is part of the reason Iren looks enticing at current levels.
As Iren delivers more megawatts and reports profitable quarters, funding its expansion will become even easier.
The 35-gigawatt development pipeline is massive
Although Iren has been quietly making more deals, it didn’t add any additional sites this quarter, resulting in a 5.8-gigawatt portfolio. However, the company did unveil more than 35 gigawatts in its development pipeline. It demonstrates how quickly the tech company can add more gigawatts to its pipeline, but the conversion from developmental gigawatts to delivered power is not straightforward.
While Iren knows how to build data centers on time and on budget, the company acknowledged that its development projects are “speculative” and that a “significant portion” of them may not secure power. In other words, a large chunk of them will fall through.
Iren doesn’t need all 35 of those gigawatts online to become a juggernaut. Even if it just adds 10 gigawatts from this development pipeline, Iren ends up with roughly 15.8 gigawatts. At $20 million per megawatt, that translates into more than $300 billion in annual recurring revenue.
Iren is at the center of the artificial intelligence boom. Neoclouds like Iren and Nebius (NASDAQ: NBIS) may be just as important as AI chipmakers in scaling out this new technology.
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Marc Guberti has positions in Iren and has the following options: long May 2027 $20 calls on Iren and long May 2027 $28 calls on Iren. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
