This evening, IREN reported record revenue of $240.3 million, up 355% YoY, and net income of $384.6 million, impacted by a $665 million gain on financial instruments. The company has experienced a significant rebound after retrofitting its Bitcoin mining operations for AI data centers, though its AI Cloud has not yet shown substantial growth, with just $7.3 million in revenue the quarter, up 4% QoQ with only 2,067 GPUs operational. However, cloud revenue growth is expected to accelerate rapidly to $500 million by Q1 and $3.4 billion by the end of 2026 – what remains is the financing and execution.

While the I/O Fund has participated in the AI-energy momentum with successful Bitcoin Miner entries, we want to be clear that these are currently momentum trades for us. In the most recent report, IREN provided a more detailed breakdown on how it will fund $5.8 billion in GPUs, using a $1.9 billion pre-payment, estimating $2.5 billion in financing secured against the GPUs and contract, and the remaining $1.4 billion from cash/cash flows, debt, equity or convertible notes. Payments for the GPUs will be phased in alignment with deliveries through 2026.

However, until financing for the full data center buildout is secured and ARR visibility materializes, we will continue to treat names like IREN as high-risk trades and adhere strictly to our stop levels.

IREN Signs $9.7 Billion Deal with Microsoft

Earlier this week, IREN announced a five-year, $9.7 billion data center with Microsoft, providing the cloud giant with 200MW of capacity of Nvidia’s GB300 GPUs. As is the case with miners, capacity will roll out in phases through 2026, with IREN aiming to deliver the full capacity by year-end. Delivery of the GPUs is not expected to commence until March 2026, hinting that the first tranche will likely not be deployed until calendar Q2.

IREN has provided a detailed breakdown of the deal value, capex costs and pre-payments:

$9.7 billion total deal value, translating to annualized run rate revenue of $1.94 billion per year, or $9.7 million per MW.
85% estimated EBITDA margin, or ~$1.65 billion per year on average.
$1.94 billion pre-payment (20%) from Microsoft, credited to the third, fourth and fifth year of the deal, covering some of the upfront GPU costs.

Moving to capex and GPUs:

All-in GPU cost of $5.8 billion including InfiniBand, cabling, servers, etc; while IREN did not disclose the total contracted GPUs, prior GB300 purchases imply that this would represent approx. 72,500 GPUs.
Data center capex costs of $14-16 million per MW, including $9-11 million for infrastructure, $3 million for 100MW supercluster architecture and flexible rack densities, and $2 million to accelerate deployment of the full capacity by the end of next year.

As stated above, IREN provided a more detailed breakdown on how it will fund the $5.8 billion in GPUs, using the $1.9 billion pre-payment, estimating $2.5 billion in financing secured against the GPUs and contract, and the remaining $1.4 billion from cash/cash flows, debt, equity or convertible notes. Payments for the GPUs will be phased in alignment with deliveries through 2026.

IREN Raises ARR Projection to $3.4B by End of 2026 with ~140K GPUs

With the Microsoft deal now under its belt, IREN had updated its annualized run-rate revenue (ARR) projection to $2.5 billion, which reflects no change to its prior target of $500 million by Q1 2026 excluding the deal.

However, IREN now guided for $3.4 billion in ARR by the end of 2026, which includes its original $500 million target, plus an additional $1 billion ARR target for its remaining 110MW capacity at Mackenzie and Canal Flats. Again, IREN warns that this figure “is not fully contracted, there can be no assurance that it will be achieved, and actual revenue may differ materially.”

Source: IREN

IREN says this forecast assumes ~63K GPUs deployed at its British Columbia sites, which would require the company to procure, receive and install an additional ~40K GPUs before the end of next year. Considering that its ~23K GPU fleet cost upwards of $1.2 billion, IREN may need to find another >$2 billion to scale to 63K in British Columbia, or potentially even $3 billion if it goes primarily for GB300s. With the company already looking for several billions in funding for Microsoft will little to show for AI Cloud revenue, this could require more debt or creative financing methods such as GPU-collateralized loans.

IREN’s 2.9GW Places Third Among the Miners

In terms of overall power capacity, IREN would rank third in the miners with its 2.9GW, behind Applied Digital’s 4.3GW active development pipeline and Galaxy’s 3.5GW. IREN’s Sweetwater campus accounts for a majority of its capacity at 2GW, with substation energization for the first 1.4GW coming in the first half of 2026 and the second substation energization for the remaining 0.6GW in the second half of 2027. Considering the high costs of fully outfitting this entire 2.9GW of capacity with next-gen GPUs, it’s unlikely that IREN’s power pipeline will expand substantially in the near future.

The more important question for IREN is two-fold: how long after substation energization will Sweetwater be ready for service, and how can IREN fund a full 2GW build-out quickly? Big Tech and semis continue to harp on power being the primary constraint, and the differentiating factor for miners is who can deliver the most power the fastest.

Current timelines for Applied Digital, Galaxy and TeraWulf project each will have less than 1GW online by 2027 for key customers, but if IREN can bring the first 1.4GW of Sweetwater online by 2027 (or at least a portion of it), it could be in a better position to secure more lucrative cloud deals. However, self-funding the full buildout will be a challenge as current GPU prices suggest 2GW could cost nearly $60 billion.

Rental Pricing and Payback Periods

IREN’s October 7th announcement about securing multi-year AI cloud contracts included an important but potentially overlooked phrase: “New NVIDIA Blackwell GPUs continue to be contracted ahead of delivery on an average term of 2 years, at pricing that supports a ~2-year revenue payback.”

What this means is that customers are currently willing to contract Blackwell GPUs for two years, as Rubin GPUs will be released late next year and will likely be highly sought after, and IREN is expecting its Blackwell GPUs to be paid back in the same two year contracts.

However, considering how quickly Nvidia (and AMD) are upgrading GPUs and the performance gains each generation brings, these older generation GPUs quickly get priced out of the market. For example, Nvidia’s H100 GPUs were renting for approximately $3.00 per hour in January 2025, prior to Blackwell’s ramp, yet now are renting for <$2 per hour, a (33%) decline that is only likely to exacerbate as the Blackwell Ultras ramp up.

Source: Bloomberg via X

Thus, relying on a two-year payback period under a two-year contract suggests that residual revenue and cash flows from these Blackwell GPUs come 2027 could be significantly lower than current contractual terms. This is because rental rates are likely to follow a similar trajectory of the H100 and decline substantially for two primary reasons: Blackwell availability will be much larger as new systems ramp through the end of the year and 2026, and early Rubin availability will likely draw a significant amount of demand for the more-performant chip.

While it may seem to be a significant positive for IREN that it can realize a two-year payback for Blackwell GPUs, the dynamics of demand and the pace of GPU upgrades imply future revenue opportunities from Blackwell may be more limited in scope.

IREN has a Cash Flow Issue

Stocks like Oracle have recently come under pressure for the enormous debt load the company is expected to inherit to fund the company’s ambitious data center plans. For example, there is rumored to be a $38 billion debt offering as soon as next week, with Morgan Stanley stating the figure could be as high as $55 billion to $75 billion.

IREN is in a similar boat as its ambitions to scale into a competitive AI data center and cloud provider are not congruent with current cash resources, meaning capital intensity and how the company will expand the balance sheet will be a key focus for investors going forward.

Last quarter, we discussed that despite operating cash flow being positive for the fiscal year at $245.9 million, the overall picture of how GPUs and data center expansion would be funded was murky. Due to outsized capex, the free cash flow was ($1.13B) or a FCF margin of –226%. In other words, every dollar of operating cash flow generated was spent 5:1 on the buildout. This improved slightly in fiscal Q1, with every dollar of operating cash flow spent only 2:1.

Financing flows filled this gap with $1.30 billion raised via converts, equity, and leases. Net-net, IREN ended FY25 with $160 million more cash than it started with, despite billion-dollar capex outlays. After year-end, the Company raised another $253.5 million via ATM equity sales and finalized a lease program that funds GPUs entirely, with fixed monthly payments of ~$2.8M and a buyout option at 18% of cost after 36 months. This strategy shifts capital intensity away from cash up front, preserving liquidity while enabling AI Cloud scaling.

However, the issue lies with the more aggressive buildout that is in front of IREN. In the previous analysis, we pointed toward IREN needing $6 billion for a 112K GPU fleet:

At Horizon 1, IREN says that it can host ~19K GB300 GPUs at 50 MW IT load, which, based on prices calculated above, would cost the company upwards of $1.5 billion. Funding this and fully outfitting its British Columbia sites for 100% AI cloud capacity would likely cost $5 billion or more, or ~10x IREN’s most-recently reported cash holdings. This also does not account for its 2GW Sweetwater campus, which IREN says can support >600K GB300s.

Analysts are expecting IREN to quickly scale its fleet through 2026, with Roth Capital projecting IREN to reach a ~112K GPU fleet by year-end 2026. This ~90K increase in GPU fleet could require IREN to take on more than $6 billion in debt, per Roth’s calculations. This would represent nearly 60% its current valuation and likely cost ~$600 million quarterly, which would not be covered by revenue nor cash flows.”

$1 Billion Convertible Raise to Support Expansion

As we discussed in our prior analysis, IREN: GPU Fleet Doubled to 23K, AI Cloud ARR Guide Raised to $500M, outfitting its pipeline with tens of thousands of GPUs will not be cheap, with the company likely to pull out several billions in debt to scale its fleet towards 100K GPUs.

In mid-October, IREN closed a $1 billion convertible note raise, giving the company approximately $922 million in capital for general corporate purposes, which will likely go towards additional GPU purchases. Considering 200MW of GB300 GPUs will cost $5.8 billion, this raise will likely only fund another 20-30MW of capacity.

Microsoft’s Nebius Deal Highlights Miner Shortfalls

Microsoft had signed a similar five-year deal with Nebius in early September worth $17.4 billion for capacity at the neocloud’s upcoming data center in New Jersey, which is expected to have 300MW capacity.

Under such terms, the deal would be worth $3.48 billion on average per year, but on a per-MW basis, $11.6 million per year, or approximately a 20% premium to IREN’s deal. Considering timing is very similar with deployment occurring throughout 2026, Nebius’ ability to command a more valuable deal may stem from its full-stack, proprietary AI cloud purpose-built for AI workloads. Nebius can offer both the powered shell and its platform with MLops services, low downtime and high cost efficiency, offering up to 3x token savings with low latency, and up to 4.5x faster time to token versus other competitors.

This further reinforces that miners’ main value proposition is simply delivering the powered shell in a timely manner, leading to potentially lower deal economics versus neoclouds like Nebius who can combine power with AI-optimized software. It’s also likely why IREN is making a deeper push to bridge the gap with its own AI-optimized cloud offering, as it could drive more valuable deals with hyperscalers, versus a deal such as Cipher’s with AWS worth $1.22 million per MW per year on average.

Financials:

Revenue

IREN reported a record $240.3 million in revenue in Q1, up 355% YoY and more than 28% QoQ, driven primarily by Bitcoin mining revenue of $232.9 million. This beat estimates for $228.5 million the quarter.

AI Cloud Revenue

IREN’s AI Cloud revenue showed minimal growth in fiscal Q1 at just 4% QoQ to $7.3 million, though this was up more than 128% YoY. Operational GPUs rose just 9% from 1,896 to 2,067, less than 10% of the ~23K the company has purchased; considering the company has announced that 11K of its fleet has been contracted under multi-year deals and are expected to be operational by the end of the year, deliveries and revenue should ramp significantly in the December quarter.

Margins

Gross margin was 66.4% in fiscal Q1, down from 71.8% in Q4, as net power prices rose 31% sequentially. Bitcoin mining gross margin shrunk from 70.9% to 65.7%, while AI Cloud gross margin shrunk from 92.9% to 90.4%.

However, operating margin was (31.8%), a stark contrast to the 11% reported in Q4, driven by a 107% sequential increase in operating expenses to $236 million, or more than 98% of revenue. This was fueled by SG&A, which rose from $53.3 million in Q4 to $138.4 million in Q1, which IREN says was driven by a “materially higher share price” that resulted in an additional $23.9 million of stock-based amortization and $32.8 million in payroll taxes related to RSUs.

Net margin was 160%, as IREN reported $384.6 million in net income, impacted by a $665 million gain on financial instruments, primarily related to prepaid forwards and capped calls on convertible notes.

Adjusted EBITDA margin also contracted from 65.1% in Q4 to 38.2% in Q1.

Cash Flows, Cash and Debt

Operating cash flow was $142.4 million, though free cash flow was ($138.2 million) as IREN spent ($180.3) million on PP&E and another ($100.3) million in GPU prepayments.

IREN reported cash and equivalents of $1.03 billion at quarter end, though noted that at the end of October, cash and equivalents totaled ~$1.8 billion following its $1 billion convertible raise. This is a sharp increase from $564.5 million as of Q4.

Property, plant and equipment was $2.12 billion, up from $1.93 billion in Q4.

Debt (convertible notes) was reported at $962.4 million, though this does not include the recent $1 billion convertible raise. IREN also added that it secured an additional $200 million in GPU financing in the quarter, bringing its total there to $400 million. IREN expects future capex needs to be met by cash/cash flows, GPU financing, Microsoft’s prepayments and additional financing methods.

Equity rose from $1.82 billion to $2.88 billion, driven by an increase in cash, financial and derivative assets. Shares outstanding rose 4% from August to October, from 272 million to 283.5 million.

Conclusion:

IREN’s AI Cloud revenue is at $7.3 million with management forecasting $500 million by Q1 and $3.4 billion by the end of next year. Of this, $1.9B is to come from the Microsoft deal over a five-year period: “When combined with the $1.9 billion expected from the Microsoft contract and $500 million from our existing 23,000 GPU deployment, this expansion provides a clear pathway to approximately $3.4 billion in total annualized run rate revenue once fully ramped.”

Estimates call for $2.5 billion at the end of fiscal year 2027 ending in June, implying the Microsoft deal and the $500 million could already be priced in. At some point, the market will want to take a rest and watch how the financing and execution pieces comes together (not IREN specific).

Also keep in mind, IREN’s main source of revenue is Bitcoin and Bitcoin prices have been dropping. As stated in our original IREN coverage, this is more of a momentum trade setup: “We are watching IREN closely and would buy on a clear breakout only. If we were to buy, we’d closely adhere to all stops.”

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in IREN at the time of writing and may own stocks pictured in the charts.

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IREN Raises Cloud ARR to $3.4B for 2026, Yet Financing and Execution Remain