Key Insights
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AI chips are crucial for running AI tools, but they are ineffective without sufficient energy.
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IREN, a provider of AI data centers, recently struck a major deal with Microsoft.
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The revenue forecast for IREN’s AI Cloud hints at significant growth ahead.
Artificial intelligence (AI) is becoming one of the most promising investment avenues we’ve seen in decades. It carries the excitement reminiscent of the dot-com boom, though it comes with genuine revenue expansion. Investors are learning just how fast AI products can be adopted, which includes services that might challenge traditional search engines. With emerging innovations like humanoid robots and self-driving vehicles, AI stocks appear positioned for substantial gains.
Initially, semiconductor stocks dominated the investment landscape during the first phase of the AI surge. However, the focus is now shifting toward different groups of stocks. Energy is essential for AI operations, and few companies are as beneficial as IREN as the next phase of AI development unfolds.
Energy: A Critical Challenge
Addressing the issue of energy supply for AI could unlock vast revenue potential. Nvidia is leading the charge, demonstrating impressive revenue growth and becoming the first company to hit a $5 trillion market valuation.
While Nvidia has made strides in tackling the AI bottleneck with its chips, the next hurdle is the energy supply. Companies, including Nvidia, are actively exploring ways to bridge this gap, as AI applications demand significant energy. Traditional data centers don’t quite cut it; their infrastructure isn’t designed for the complex needs of AI software.
This gap has led tech companies to seek AI data center providers capable of supplying adequate energy. Major players are acquiring these firms before their full value is recognized. A case in point is Alphabet’s recent $4.75 billion acquisition of AI data center company Intersect, highlighting the financial commitment tech giants are willing to make in this area.
Recurring Revenue from Contracts
IREN’s largest contract, signed last November, was with Microsoft, involving a substantial IT load of 200 megawatts. This five-year agreement is expected to generate nearly $9.7 billion, translating to about $2 billion in annual recurring revenue, which is supported by a 20% upfront payment to facilitate funding for the data center.
IREN has a multi-gigawatt pipeline that is set up for further opportunities. There’s reason to believe they’ll secure more gigawatts and develop new sites as soon as 2026. IREN’s co-CEO, Dan Roberts, mentioned in September that demand is outstripping supply, pointing to the possibility of future site announcements.
Given the potential for each AI data center to establish numerous deals like the one with Microsoft, IREN could boost its recurring revenue significantly as demand for AI increases. If another contract similar to the Microsoft deal materializes, IREN’s revenue could quickly grow by over $1 billion annually. Not many companies can scale this quickly.
Astounding Growth in AI Cloud Revenue
Even though IREN’s revenue mostly comes from cryptocurrency, AI infrastructure is clearly the future. IREN aims for a remarkable $3.4 billion in annual AI cloud run-rate revenue by the close of 2026, which is a significant shift from the mere $16.4 million it reported for fiscal 2025. For the first quarter of fiscal 2026, ending September 30, IREN recorded $7.5 million in AI cloud revenue.
This jump in annual recurring revenue could exceed $3 billion by the end of 2026, suggesting that strong growth is on the horizon for 2027 and beyond. IREN has ample scope to elevate its recurring revenue due to its multi-gigawatt pipeline, and its ability to construct AI data centers without delays will enable service expansion to new areas. While chips were the major bottleneck in the past, energy has taken over that role, and as this realization spreads, stocks like IREN could see an uptick.
Should You Consider IREN Stock Now?
Before deciding to invest in IREN, keep the following in mind:
The Motley Fool’s analyst team has pinpointed what they consider the Best 10 stocks you could invest in right now, and surprisingly, IREN isn’t on that list. These selections encompass stocks potentially set for impressive returns in the upcoming years.
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