Iren (IREN 6.23%) has been a massive winner over the past three years. The explosive revenue growth of 750% for the company has driven the stock price up by 3,360% during that period. The company owns and operates data centers, selling computing capacity to its customers. After focusing for years on Bitcoin (BTC 0.95%) mining, Iren is now pivoting to using its hardware to power artificial intelligence (AI) data centers.
Its new five-year, $9.7 billion contract with Microsoft is a game changer. Iren plans to expand its hardware backbone to 140,000 GPUs over the next year, which could take the company's annualized revenue run rate to $3.4 billion. That would be another explosive leap for a business that had $685 million in total revenue over the past four quarters.
NASDAQ: IREN
Key Data Points
Sounds great, right? Now, forget that stock. Here's why investors would be better served to buy Equinix (EQIX 0.85%) instead and hold onto it for the long term.
Iren's growth could fade as quickly as it arrived
The Microsoft deal suggests that Iren is poised to become the next major player in the data center space. However, there are some serious red flags to consider.
Image source: Getty Images
Iren built its business on Bitcoin mining. That represented 97% of the company's revenue in its most recent quarter. Iren is using its cash flow, along with prepayments from Microsoft and other sources, to fund its massive GPU purchases.
But Bitcoin mining requires healthy price action to be profitable, and the original crypto's price has historically been volatile: It has declined by more than 60% on several occasions throughout its existence. Moreover, it has fallen by nearly 30% from its all-time high since the start of October.
Bitcoin Price data by YCharts.
If the crypto suffers a prolonged downturn, money flowing into Bitcoin mining could slow or cease as mining becomes less profitable. The risk of Iren's core business drying up threatens both its AI expansion plans and its stock price. Given those risks, it may be wise to consider a more reliable investment, even if it offers less upside.
This leading data center landlord is doubling its capacity
Equinix is a real estate investment trust (REIT) and a leading data center builder and operator. Its buildings are designed with the latest in data center features, and it rents them to tenants that often bring their own computing hardware. That means Equinix doesn't need to invest in pricey cutting-edge GPUs. Its rental income translates into stable cash profits that Equinix distributes to investors as nonqualified dividends.
NASDAQ: EQIX
Key Data Points
It currently operates 273 data centers worldwide, and plans to double its capacity by 2029. Annualized gross bookings rose by 25% year over year in its most recent quarter, indicating that Equinix is clearly benefiting from AI demand. Its entrenched tenant base provides the stock with a much higher floor than Iren.
Investing ultimately boils down to personal preferences. Those who are uneasy with Iren's vulnerability to Bitcoin's volatility may want to consider Equinix as an alternative. The REIT also offers AI data center exposure, and its dependability makes it arguably the better long-term holding.
