Vertiv (VRT 1.95%) is one of the top artificial intelligence (AI) stocks thanks to investor enthusiasm regarding its liquid cooling solutions, which are critical for data centers. The stock has outpaced the S&P 500 for quite some time. Shares are up by 39% over the past year and have soared by more than 550% over the past five years.
Vertiv is still delivering solid numbers and is still a solid growth stock, but the stock has already had a good run. Some smaller AI-focused stocks have the potential to generate higher returns. AI-focused data center operator Iren (IREN 4.98%), for instance, has seen its stock price more than quadruple in the past year but still has a smaller market cap than Vertiv. Iren also has tremendous revenue growth potential that can turn it into an AI giant.
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Iren could soon generate $20 billion in annual recurring revenue
Iren's potential for further outsized growth is largely tied to a recent five-year deal with Microsoft (MSFT +1.01%). The agreement lets Microsoft use 200 megawatts of Iren's power for a contract value of $9.7 billion. Iren also negotiated a 20% prepayment, which will help finance the company's expansion while making it less reliant on debt and dilution. The deal averages roughly $2 billion per year, and with approximately 3 gigawatts of power in the pipeline, Iren will soon have enough capacity to support 14 additional deals like the Microsoft contract.
Those numbers, plus Iren's desire to expand its pipeline, suggest that $20 billion in annual recurring revenue is possible within five to 10 years. Iren is targeting $3.4 billion in annual recurring revenue by the end of 2026, compared to $3.1 million in AI cloud revenue in fiscal 2024 and $16.4 million in fiscal 2025.
Iren management told investors when discussing fiscal 2025 results that it expected to reach $200 million to $250 million in annual recurring revenue by December 2025. The Microsoft deal put the company well ahead of that guidance and suggests it can blow past the $3.4 billion in annual recurring revenue by the end of 2026.
NASDAQ: IREN
Key Data Points
Vertiv is growing, but not as quickly as Iren
Vertiv isn't a bad AI stock. All you have to do is look at long-term returns to see that it has cruised past the S&P 500. However, it's not growing as quickly as Iren. The growth stock delivered 29% year-over-year revenue growth in Q3 but only offered guidance for 18% to 22% year-over-year revenue growth in Q4. That suggests its growth may be leveling off. Vertiv can still deliver impressive returns as it expands profit margins, and liquid cooling solutions will remain in high demand as AI infrastructure continues to expand.
However, some investors are looking for a faster-growing AI stock to achieve higher returns. It also helps that Iren has a $12 billion market cap compared to Vertiv's $67 billion market cap. It doesn't take as much capital to move stocks with small market caps, and that could serve to Iren's benefit in this battle.
