Shares of artificial intelligence (AI) "neocloud" Iren Limited (IREN 7.14%) rallied 29.4% in October, according to data from S&P Global Market Intelligence.
Iren's October rise was all the more impressive since the stock had already rallied some 77% in September, when AI enthusiasm took off and investors realized Iren owned scarce land and contracted power for AI data centers.
Back in September, Iren announced it had secured a hefty supply of graphics processing units (GPUs) and increased its annualized revenue run rate (ARR). As the calendar flipped to October, Iren disclosed that it had in fact converted those GPUs into firm contracts with AI cloud providers. The company then parlayed the market's optimism and higher stock price into cash, raising more money through a convertible notes offering.
NASDAQ: IREN
Key Data Points
Iren writes contracts, Wall Street applauds
In early October, Iren announced that it had secured additional multiyear contracts with leading cloud providers to make use of Iren's AI chips. Per the press release, Iren noted the secured contracts encompass 11,000 of Iren's total 23,000 AI GPUs, good for about $225 million in revenue. Iren also elaborated that the contracts averaged two years at rates that generated a two-year payback.
Management also noted the company remained "on-track" to rent out the remaining 12,000 chips and achieve its goal of a $500 million ARR by the end of the year. Moreover, with its contracted land and power, Iren noted it was in discussions to expand beyond its current 23,000 GPUs to up to 100,000 GPUs, paving the way for future growth.
After the announcement and subsequent rise in the stock, Iren took advantage of a higher stock price by raising $1 billion in convertible notes. Iren had proposed raising just $875 million, but the offering was oversubscribed.
The convertibles were zero-coupon notes with a hefty 42.5% conversion premium, meaning the notes would convert to stock if the share price hit about $91 per share, given that shares traded around $64 at the time of the notes offering. Iren also used $56.7 million of the offering to buy capped calls that would limit dilution and increase the effective conversion price to above $120.18 per share.
The capped call showed management's optimism for future price appreciation, likely bolstering investor enthusiasm for Iren's stock.
Image source: Getty Images.
Iren off to a good start in November, too
After month-end, Iren made another huge announcement, announcing a five-year, $9.7 billion deal with Microsoft on Nov. 3, which will pre-pay 20% of the contract, likely so that Iren can buy the requisite number of GPUs. The new deal essentially quintuples Iren's ARR from $500 million this year to $2.5 billion once the full contract comes online.
Iren then reported earnings a few days later, showing strong growth and projecting that $2.5 billion to rise to $3.4 billion in ARR by the end of 2026.
All in all it has been a great stretch for Iren, which now trades at 5 times its 2026 guidance for ARR.
That may actually seem like quite a value to some people, given the hypergrowth we are seeing in the AI space. Moreover, Iren has another 2 GW of contracted power at its Sweetwater location that it hasn't even brought online or contracted yet. For reference, its current contracted $2.5 billion in ARR only encompasses about 350 MW. So, there remains quite a bit of growth potential for Iren even with capacity it has already contracted.
However, the longevity of the AI boom, the useful life of AI GPUs bought today, and a whole host of other uncertainties remain. So Iren remains a high-risk, high-reward play on AI.
