Microsoft's AI Ambitions Boosted by New Deal

Broker Canaccord Genuity has highlighted a pivotal moment for IREN following its substantial graphics processing unit cloud contract with Microsoft. This five-year agreement, valued at $9.7 billion, is seen as a transformative step for IREN, a bitcoin miner, as it ventures firmly into the artificial intelligence infrastructure sector.

Canaccord has reiterated its buy rating on IREN shares and has significantly raised its price target from $42 to $70. The deal includes a 20% prepayment from Microsoft, which is expected to bolster IREN's financial stability.

Analysts forecast a 32% levered internal rate of return from this agreement, suggesting a promising financial outlook. Joseph Vafi, leading the analysis at Canaccord, noted the potential for this contract to shift investor focus from traditional mining operations to AI capabilities.

IREN will provide Microsoft with Nvidia's GB300 GPUs, sourced from its Horizon data centers in Texas, which are crucial for the project. This arrangement is anticipated to fund approximately half of the projected $3 billion Horizon buildout.

Despite existing risks related to chip supply and power costs, the upfront payment from Microsoft and its credit backing are expected to mitigate some of these uncertainties. Furthermore, Canaccord pointed to IREN's upcoming Sweetwater 1 site, which is expected to be operational by 2026, as a significant catalyst for growth.

The broker has also increased its valuation for this site to $32 per share. IREN's latest quarterly report indicated a remarkable revenue increase of 355% year-on-year, totaling $240.3 million. Canaccord emphasized that IREN's scale, access to low-cost power, and strategic integration of crypto and AI technologies provide a competitive edge in the evolving market landscape.

Overall, this deal with Microsoft is a clear indication of the growing intersection between cryptocurrency mining and AI infrastructure development, reinforcing Microsoft's strategic initiatives in technology innovation.