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Investing.com - Bernstein SocGen Group has raised its price target on Iris Energy (NASDAQ:IREN) to $125.00 from $75.00 while maintaining an Outperform rating following the company’s $9.7 billion deal with Microsoft. The stock is currently trading at $67.75, with a market cap of $18.6 billion and a P/E ratio of 154, according to InvestingPro data. The company has shown remarkable momentum, with a 696% return over the past year.
The deal, announced Monday, will provide Microsoft with 200 megawatts of AI data center capacity at Iris Energy’s Childress, Texas facility. This arrangement is expected to generate $2 billion in annual recurring revenue for Iris Energy by 2027, in addition to $500 million ARR from existing cloud capacity. InvestingPro data shows Iris Energy’s revenue grew by 168% in the last twelve months to $501 million, with analysts forecasting 129% growth next fiscal year. Investors should note the company reports earnings in just 2 days on November 6.
Bernstein highlights that unlike competitors, Iris Energy owns its powered sites totaling approximately 2.9 gigawatts, giving the company significant flexibility to scale with client demands without depending on co-location partners, while improving margins. The company operates with a moderate debt level and maintains a healthy current ratio of 4.29, indicating its liquid assets comfortably exceed short-term obligations. InvestingPro rates the company’s overall financial health as "GOOD" with a score of 2.88.
The Microsoft contract utilizes only 10% of Iris Energy’s power portfolio, which spans across British Columbia (160MW), Childress, Texas (750MW), and Sweetwater, Texas (2GW). The company has used just 300MW of the 750MW available at the Childress site for the Microsoft deal.
Bernstein values Iris Energy as a sum of parts across its Bitcoin mining business, AI cloud revenues from actual contracts, and a conservative site take-out multiple for the 2GW Sweetwater site, noting this approach leaves "plenty of optionality" for the company to scale its operations.
In other recent news, Iris Energy has signed a significant $9.7 billion multi-year GPU cloud services contract with Microsoft. This agreement includes providing Microsoft with access to NVIDIA GB300 GPUs, with a 20% prepayment from Microsoft. To support this contract, Iris Energy has also entered into an agreement with Dell Technologies to purchase the necessary GPUs and equipment for approximately $5.8 billion. Despite this major development, H.C. Wainwright has downgraded Iris Energy from Neutral to Sell, citing valuation concerns, execution risk, and unknown AI counterparties. The firm set a price target of $45.00, expressing concerns over what it called "irrational exuberance" among investors. Iris Energy also completed a $1 billion convertible notes offering with a 0% coupon, which was oversubscribed, leading to an additional $125 million in notes being sold. This convertible notes offering is due in 2031 and was sold to qualified institutional buyers. These recent developments highlight significant financial and strategic moves by Iris Energy.
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