The Curious Case of IREN: Can The Neocloud Win Back Investors After A 50% Stock Slump From Its November Peak?

Long-term contracts, GPU expansion, and analyst optimism suggest upside despite fragile neocloud economics and margin risks.

• IREN exited the Bitcoin mining expansion to focus on AI cloud and HPC, landing a landmark Microsoft deal and aggressively scaling GPU capacity.
• After a 1,160% surge to November highs, sentiment cooled amid AI skepticism, dilution fears, and weaker margins, triggering a sharp correction.
• Analysts see contracts, ARR visibility, and long-term AI demand outweighing fragile neocloud economics once sentiment improves.

IREN, a former Bitcoin miner, made all the right moves when a broader multi-year uptrend seen since January 2023 began to lose steam early this year. The company has always been quick to identify opportunities, and investors have promptly welcomed each of its strategic moves. 

Despite a steep descent seen since November, IREN’s stock is still up 261% year-to-date (YTD). 

Strategic Shifts Paying Off

Sydney, Australia-based IREN, founded in 2018 by siblings Daniel and Will Roberts, started as a provider of solar services for commercial and residential use. The company used clean energy to fuel a booming Bitcoin mining business that benefited from a strong rally in the apex crypto that began in late 2022. 

Then, as data centers powering energy-hungry artificial intelligence (AI) workloads surged in popularity, IREN pivoted decisively, seizing the opportunity with both hands. In a statement released on March 31, the company said it was pausing all Bitcoin mining expansion and shifting its focus. Announcing the shift, CEO Daniel Roberts said:

“As we near completion of our 50 EH/s mining expansion, our focus is shifting to the next phase of growth and delivering scalable infrastructure for AI and HPC through our AI Cloud Services and AI Data Center businesses.”

Since IREN announced the pivot, the stock has gained a whopping 1,160% from its Nov. 5 intraday peak of $76.87. By the time, IREN had landed a massive deal with Microsoft, valued at $9.7 billion over five years, providing the software giant with access to Nvidia’s GB300 GPUs. Simultaneously, the company also struck an agreement with Dell to acquire the GPUs and ancillary equipment for about $5.8 billion. 

Following the deal, Macquarie analyst Paul Golding said the development further accelerates IREN’s diversification into AI Cloud:

“The move signals IREN's vertically integrated AI Cloud platform being a formidable offering in the market. It also unlocks a customer segment among global hyperscalers.”

JPMorgan, which has a ‘Sell’-equivalent rating, raised IREN’s stock price target to $39 from $28 in late November, citing the flurry of deal activity in high-performance computing.

Source: Koyfin<

Market Darling To Momentum Casualty

The rally in IREN stock, a favorite among both investors and retailers, stalled in early November as skepticism about AI plays gained ground amid bearish comments from some sections of fund managers and Wall Street firms. IREN’s mixed quarterly results reported on Nov. 6 further dented sentiment.

IREN’s announcement on Dec. 1 regarding a $2 billion convertible note offering also did not go down well with investors.

The technical picture also deteriorated after the stock completed a double-top formation in early November. Since the Nov. 5 peak, the stock has shed 54%

Source: Koyfin<

Is Neocloud Business Model A Drag?

With IREN staying deep in correction territory, investors have begun raising questions about IREN’s AI pivot. At least one research firm does not think likewise. In a report released on Monday, B. Riley analysts reiterated a ‘Buy’ rating and a $74 price target, citing their view that the company is set to outperform fellow neoclouds once AI sentiment improves, Coindesk reported.

How Neoclouds Fared This Year

Since Nov. 5, IREN’s stock has underperformed its peers, including CoreWeave (CRWV), Applied Digital (APLD), and Nebius Group (NBIS), but it still towers over the rest, considering the YTD returns.

Source: Koyfin<

Apart from the publicly listed stock, other dominant players in the space are London-based Civo, Crusoe Cloud, Lambda, and Vultr.

Fundamental Challenges

Calling Neocloud’s business model “bare-metal-as-a-service” (BMaaS), consultancy firm McKinsey said their economics are fragile. With this model, gross margins are typically around 55%-65% before depreciation, depending on utilization and pricing. The firm said:”

“If there is a small decrease in GPU rental prices, or if utilization slips below 80 percent, returns will flatline. The economy becomes even more fragile when debt financing is taken into account, because interest costs quickly erase any residual cushion.”

Iren, which previously boosted EBITDA margins to 40%, has seen them drop to 10.4% in the third quarter.

Source: Fiscal.ai<

McKinsey highlighted price erosion of older GPUs during the new chip release cycle as another risk these companies face. The firm also said the big deals are less lucrative than they seemingly appear. 

“These big deals have resulted in high revenue concentration for neocloud players. Public disclosures show that for some players, more than half of their revenue comes from just one or two customers.”

Retail Mood Improves

The retail users of the Stocktwits platform have turned ‘bullish’ on IREN’s stock as of early Tuesday from the ‘bearish’ mood seen a week ago. The stock has seen a 273% increase in followers over the past year, and retail chatter has surged by over 300% — all indicating rising retail interest in the stock.

What Could Rignite IREN Rally

IREN has taken some risk off the table by locking in a huge contract and also strengthening its balance sheet.

On the September quarter earnings call, CEO Daniel Roberts said that the Microsoft contract will fetch a 20% prepayment and $1.94 billion in annual recurring revenue (ARR), according to a Koyfin transcript. He also flagged a strong scaling of its GPU fleet to 140,000 GPUs by the end of 2026, up from 23,000 currently, which can support $3.4 billion in ARR. 

B.Riley called IREN’s stock price movement a sentiment-driven reset in a volatile proxy, rather than a break in fundamentals. The firm said IREN faces only a $2.7 billion gap between available capital and its planned high-performance computing (HPC) capital expenditure. It views the recent pullback as a buying opportunity.

According to Koyfin, more than 70% of the analysts covering IREN stock have buy-equivalent ratings. The average analyst price target for the stock is $81.85, implying over 130% upside over the next year.

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