Shares of IREN, Limited (IREN 1.45%) plunged 23.8% in February, according to data from S&P Global Market Intelligence.
IREN has made a name for itself as one of the leading public "neoclouds," which are essentially Bitcoin (BTC 0.31%) miners that have pivoted to becoming AI data centers.
During February, the company reported fourth-quarter earnings that continued to show solid progress on its transformation plan; however, it appears Wall Street was looking for bigger and better things amid the hype around AI computing.
NASDAQ: IREN
Key Data Points
No deal announcement sends shares spiraling
In the fourth quarter, IREN reported revenue of $184.7 million, up 59% year-over-year, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 20.7% to $75.3 million.
While both figures showed strong growth on a year-over-year basis, both revenue and EBITDA actually fell quarter over quarter. But this is due to IREN's deliberate strategy of decreasing its Bitcoin mining operations and investing in AI infrastructure. Moreover, Bitcoin prices fell both in the fourth quarter and in the current quarter, exacerbating the decline.
However, more than any financial data point, investors might have been disappointed that IREN didn't announce any new large-scale neocloud deals like the one it signed with Microsoft (MSFT 0.73%) back in November. Iren's stock had risen during January, so it's possible that investors had been expecting another large-scale deal.
Still, management doesn't seem overly concerned about demand. CEO Daniel Roberts noted on the call with analysts that the company was seeing "multiple advanced negotiations underway for larger-scale deployments."
IREN also secured another 1.6 GW of grid-connected land in Oklahoma, increasing its total capacity to 4.5 GW. Finally, management was pleased to share IREN had secured GPU-backed financing for the Microsoft deal at interest rates under 6%, which is quite low compared with similar deals at other neoclouds.
Image source: Getty Images.
AI investors were in a sour mood in February
Overall, it seems there were at least as many bits of good news as there were imperfections for IREN on this earnings call, at least from this investor's perspective. The big eye-opener was IREN securing more capacity and increasing its growth runway. This has the potential to drive even greater long-term value.
Still, investors might have wondered about the wisdom of securing more land when the company has only leased 10% to 20% of its current capacity at year-end, and didn't announce any new deals. Moreover, IREN's current grid-connected land has been touted by management as a scarce asset. Therefore, the company's securing of another 1.6 GW may have actually backfired, leading skeptics to view the "scarcity" factor as a non-issue for competitors.
IREN skeptics have also criticized the economics of the Microsoft deal. But the attractiveness of that deal will likely depend on the remaining useful life of GPUs beyond the five-year deal term. If one thinks GPUs bought today will be useful to rent out a good rates 10 years from now, IREN's discounted stock could be a bargain. However, if those GPUs' useful lives end at the end of the five-year contract, IREN could run into trouble.
It's possible management didn't announce new deals because it's looking for better economics than the anchor Microsoft deal, which was the first large-scale deal for IREN and likely consummated to "put it on the map," so to speak. Only time will tell if IREN can lease out the bulk of its capacity on better terms, or if GPU value will last well beyond the initial five-year contract.
