Artificial intelligence (AI) has been one of the best investing opportunities in recent decades. It combines the excitement of the dot-com bubble with real revenue growth. AI models showed investors how quickly people would adopt AI products and services that could compete with established options like search engines. Now, with humanoid robots, autonomous vehicles, and other innovations on the horizon, AI stocks look poised for another rally.
Semiconductor stocks were the defining group of investments during the first stage of the AI boom, but another group of stocks will be the next winners. Energy is at a premium for AI workloads, and few companies look as compelling as IREN (IREN 3.90%) as the next AI rally takes shape.
Energy is the new bottleneck
Image source: Getty Images.
Solving any AI bottleneck can result in billions of dollars in annual revenue with skyrocketing prospects. Nvidia continues to prove this truth with impressive revenue growth while becoming the first company to reach a $5 trillion valuation.
NASDAQ: IREN
Key Data Points
Nvidia's AI chips solved a critical part of the AI bottleneck, and energy is next. Nvidia and other tech companies are actively seeking solutions to the power supply gap. Since AI apps require significant energy, there's an energy shortage that few companies can solve. Traditional data centers don't even get the job done, since their infrastructure isn't set up to handle the complex workload of AI software.
That's why tech giants have turned to AI data center providers that have sufficient energy to meet the demands of AI tools. Some tech leaders are acquiring AI data companies before their value is fully realized. For instance, Alphabet just bought AI data center company Intersect for $4.75 billion. The acquisition demonstrates how much capital Alphabet and its competitors are willing to put into AI data centers like IREN.
Each contract offers annual recurring revenue
IREN's biggest contract came in November, when Microsoft received 200 megawatts of critical IT load. It's a five-year deal that comes to $9.7 billion, or almost $2 billion in annual recurring revenue. IREN also received a 20% prepayment, which will help it fund additional AI data centers.
IREN has a multi-gigawatt pipeline that can support additional deals. It's reasonable to assume that IREN will secure additional gigawatts in 2026 and build additional sites. IREN co-CEO Dan Roberts said in September that IREN can't meet demand fast enough, which suggests that more sites will be announced in the future.
Each AI data center can provide multiple deals like the Microsoft one. Billions of dollars in annual recurring revenue make it easier for the company to scale its revenue growth, especially as AI demand continues to grow. IREN can announce another contract like the Microsoft deal and immediately see its annual revenue go up by more than $1 billion per year. Few companies have that type of opportunity to scale quickly.
AI cloud annualized revenue growth is astronomical
IREN still makes most of its revenue from crypto mining, but AI infrastructure is the future. That future is coming quite soon, based on IREN's goal of reaching $3.4 billion in AI cloud annualized run-rate revenue by the end of 2026.
That's a sizable jump, since AI cloud revenue only came to $16.4 million in fiscal 2025, which ended on June 30. IREN also reported $7.5 million in AI cloud revenue in first-quarter fiscal year 2026, which ended on Sept. 30. A jump to more than $3 billion in annual recurring revenue by the end of 2026 is a massive jump that suggests a high growth rate is still possible in 2027 and beyond.
IREN has a lot of room to expand its annual recurring revenue based on its multi-gigawatt pipeline. The company's ability to build AI data centers on time without missing deadlines will help the company scale its services into additional locations. Chips were the major bottleneck a few years ago, and they're still doing well. Some investors are starting to realize that energy is the new bottleneck, and stocks like IREN can take off as more people recognize that fact.
