Shares of the neo-cloud company IREN soared after the earnings report. What does this mean for AI stocks?

Investors have returned to the shares of the neo-cloud company IREN, which leases computing power for AI. Along with its quarterly report, the company announced that some of its customers are willing to pay in advance for the construction of data centers. The market currently views financing growth as the main risk for cloud providers.

IREN shares began to rise after the close of the main trading session on November 5, when the company released its report, and continued to climb in premarket trading on November 6, jumping more than 17%. Buyers were drawn to the news of a new five-year contract under which the customer prepaid 90% of the cost of the chips, according to MarketWatch.

The prepayment could reduce IREN's financing needs, according to the company's report. This is important for investors: concerns are growing in the market that companies living on debt will have a hard time meeting their obligations if interest rates rise and lenders pull out of the market, CNBC notes.

IREN's revenue from leasing AI computing power nearly tripled to $200 million for the quarter ending in September. The company claims that contracts—which are expected to bring its annual revenue to over $4 billion—have already been signed and financed. However, IREN now expects to reach that level in January rather than by the end of this year, and the timeline could be pushed back to the end of February. The delay is due to a request from Microsoft to upgrade the network infrastructure of the 200 MW facilities that IREN is building for it in Texas. No penalties for the delay will be incurred, as the changes were requested by the client itself, Reuters reports.

The consensus rating for IREN shares is “outperform” (Overweight), and it has remained unchanged over the past three months. According to The Wall Street Journal, 18 out of 23 analysts recommend buying the stock (Buy and Overweight ratings), five recommend holding (Hold), and there are no sell recommendations. The average price target of $67.6 is 275% higher than the most recent closing price.

The sell-off following the U.S. election hit cloud providers particularly hard, but IREN has advantages—a diverse customer base and “well-managed” finances— according to analysts at the brokerage firm Bernstein, as cited by MarketWatch. IREN co-CEO Daniel Roberts also sees a discrepancy between the market’s reaction and the company’s actual situation. “There’s a disconnect between what we’re seeing in the public market and what we’re seeing at the customer level,” he told CNBC.

By the end of the current fiscal year, IREN plans to invest approximately $15 billion in capacity expansion. The company already has $9 billion in cash and committed financing, while another $6 billion is “contingent” financing that depends on market conditions, IREN cautioned. Meanwhile, capital markets have “become more selective” in recent weeks, Roberts acknowledged at the quarterly earnings conference call. Now the question is not the size of the contract, but whether it can be executed, financed, and made profitable, he added.

On November 5, the Nasdaq-100 fell 6.4%, marking its worst day since March 2020, according to Yahoo Finance. The sell-off was fueled by fears that AI regulations would tighten following the Democrats’ victory in the U.S. midterm elections, Reuters notes. IREN shares fell 17% that day and 55% over the course of the month. At the same time, Bloomberg reported that Dutch bank ING had put $500 million in loans to data centers up for sale, while Microsoft was tightening its control over projects involving IREN and other cloud providers due to delays and rising costs.

In premarket trading on November 6, Nasdaq-100 futures rose 1.3%. After the main session opens, the market may see a technical rebound following a massive sell-off, but uncertainty surrounding data center construction will hold it back, according to Freedom Broker. Following IREN’s earnings report, its competitors CoreWeave (November 10) and Nebius (November 12) will report their results. Their shares have fallen 60% and 48%, respectively, over the past month.

This article was AI-translated and verified by a human editor