Key Points
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As part of the deal, IREN will deploy up to 5 gigawatts of Nvidia infrastructure at its data center.
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Nvidia will have the right over the next five years to take a $2.1 billion stake in the company.
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IREN also added Nvidia as a cloud customer, further demonstrating its ability to attract large AI customers.
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IREN (NASDAQ: IREN), a former Bitcoin miner that converted to an artificial intelligence (AI) data center company, scored a major win today after announcing a deal and strategic partnership with AI chip giant Nvidia.
Under the partnership, IREN will deploy up to 5 gigawatts of Nvidia’s DSX-branded infrastructure across its global data center footprint to run AI workloads.
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IREN will also give Nvidia the right over the next five years to buy up to 30 million shares at a strike price of $70, giving Nvidia the option to purchase an overall $2.1 billion stake in the company.
Image source: Nvidia.
In a separate announcement last night, IREN also announced that the Australian company will serve as a cloud provider to Nvidia for the company’s own AI workloads. IREN will leverage Nvidia’s Blackwell systems at its Childress, Texas, facility for this deal, valued at $3.4 billion over the next five years.
As of 10:57 a.m. ET, shares of IREN traded nearly 9% higher. Here’s what else investors need to know about this deal.
Added credibility for IREN
A lot is going on in this deal, but it looks like a circular financing arrangement that we’ve seen Nvidia strike with other data center companies and companies in the AI sector.
IREN will deploy Nvidia’s chip and server infrastructure across its footprint and will grant Nvidia the right, though not necessarily the obligation, to purchase a stake in the company. Separately, Nvidia is also paying IREN $3.4 billion to use data center capacity over the next five years.
The good news from IREN is that this partnership further legitimizes the company’s place in the AI ecosystem, which is important because it used to be a Bitcoin miner. IREN had previously signed a $9.7 billion deal with Microsoft, so it now has two very legitimate customers.
In a research note following the deal, Compass Point analyst Michael Donovan said the deal “further validates Iren’s ability to monetize air-cooled infrastructure with a strategic AI customer at scale.”
He maintained a buy rating and a $105 price target, suggesting strong upside from the stock’s current level, slightly above $62 per share.
The data center business can be tricky. On one hand, these companies are essentially direct bets on the growth of the AI sector because they are needed to power AI solutions and applications.
On the other hand, the business is capital-intensive, many of these companies are highly leveraged, and trade at big valuations.
As of its most recent quarter, IREN has a debt-to-equity ratio of 1.56, which is high but not a cause for concern just yet. However, IREN also continues to report heavy losses, and revenue in its most recent quarter actually declined from the previous quarter.
Meanwhile, the stock trades at 118 times forward earnings and 21.3 times forward revenue. While I can understand that valuations may be less relevant when trying to quantify the potential growth of AI, I still think investors should be mindful.
I think it’s OK to have some data center exposure, but I wouldn’t make it an outsize position in your portfolio.
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Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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