Got some idle cash you're ready to put to work, but don't know where to put it? You're not alone. Artificial intelligence (AI) stocks do seem to be overvalued as charged, posing a pullback risk to the entire market. Buying anything here feels a bit uncomfortable.
In scenarios like these, you don't necessarily need to remain on the sidelines. There are always stocks worth stepping into. You just have to dig deeper to find them. You may even need to look overseas.
If you've got $1,000 -- or any other amount of money -- that you're ready to invest for growth, Australia's Iren (IREN 4.69%) is worth a closer look. You'll even maintain some smart exposure to the still-growing AI data center market.
Image source: Getty Images.
What's Iren?
It's not a household name ... at least not to U.S. investors. That's the point. Too many stocks of American AI companies are overvalued. It's time to look off the beaten path. Australia's a great starting point, and Iren's a great place to start (and perhaps even finish) that search.
Iren offers access to artificial intelligence data centers. Powered by Nvidia's (NVDA +1.68%) processors, the $16 billion company's five operational data centers produced $240 million worth of revenue during the three-month stretch ending in September, turning nearly $92 million of that into adjusted EBITDA. Most of that came from mining Bitcoin (BTC 0.03%), although this same infrastructure is capable of handling a range of AI tasks. It's just a matter of telling its computing equipment what to do with all that computing power.
That far more lucrative business is brewing, if the recent deal with Microsoft (MSFT +1.37%) is any indication. Earlier this month, Iren announced that it had won a five-year, $9.7 billion contract with the software giant to handle data center work that will eventually require 200 megawatts' worth of electricity. That's a big chunk of Iren's total current computing power.
NASDAQ: IREN
Key Data Points
That's only a fraction of what's ultimately coming, though. Its facility in Sweetwater, Texas, will soon be able to handle up to 2 gigawatts' (2,000 megawatts) worth of work, with the first 1.4 gigawatts of this capacity expected to become accessible by April of the coming year. The other 600 megawatts should be up and running by late 2027. For perspective, that's roughly 10 times Iren's current ability to serve hyperscalers and AI model developers.
Focus on the business's bigger picture
Nobody denies that the demand for AI data centers is exploding. But Iren doesn't actually have the infrastructure in place yet to meet it ... just plans. Much can happen between now and then to derail these plans.
Iren will also need to spend heavily on processing chips in the meantime, just to deliver service as promised to Microsoft. The company inked a hefty $5.8 billion deal with Dell Technologies (DELL 0.13%) to buy the required AI processors the contract calls for, although H.C. Wainwright analyst Mike Colonnese fears Iren will need to spend nearly $9 billion to fully meet its new mega-customer's need. There's no apparent room or margin for error either.
Don't forget about the sheer competitiveness of the AI data center market, where Iren competes with the likes of deeper-pocketed Amazon (AMZN 1.27%), Alphabet (GOOG 0.77%) (GOOGL 0.78%), and sometimes even its aforementioned new partner, Microsoft.
There's still more demand for AI data centers than the entire industry is currently capable of meeting. This isn't likely to change in the foreseeable future, either. Indeed, Precedence Research believes the global artificial intelligence data center industry is set to grow at an average annualized pace of more than 28% through 2034. If Iren builds it, customers will pay for it.
Then there's the small but important nuance buried in data recently reported by Synergy Research Group that bodes well for Iren. That is, while powerhouses like Alphabet, Amazon, and Microsoft remain the world's leading cloud computing names, as more data centers are being used for AI purposes, smaller specialists like CoreWeave (CRWV 1.25%), Databricks, and Iren are providing the customized solutions that a growing number of institutional clients need. Remember, it's not as if Microsoft isn't capable of building out its own AI data centers. It came to Iren for a reason ... most likely its power-efficient platforms and its ongoing readiness for Nvidia's next generation of AI processors.
Brace for a wild ride -- it'll be worth it
Is it a foundational holding for long-term portfolios? No. Iren brings too much risk and volatility to the table for anyone to use as a core position. And it's certainly not a smart "first-ever" stock pick for newcomers to the market.
From a risk-versus-reward perspective, though, Iren stock's got more than enough of the latter to justify the former, particularly given that it's only trading at about 50 times this fiscal year's projected per-share profit of $1.06.
Data sources: StockAnalysis.com, Simply Wall St. Chart by author.
Analysts agree, by the way. Even with the stock's big run-up since May of this year, the majority of the analyst community rates this stock a strong buy, with a consensus target of $85.73 -- that's nearly 50% above the stock's present price. That's not a bad way to start out a new trade.
Just remain prepared for the volatility that stocks of most small companies transitioning from one focus to another (in the midst of a major capacity addition, no less) usually dish out. It'll be worth it in the long run, but a wild ride in the meantime.
